Understanding the Depreciation Calculation Process Concept Understanding the

Understanding the Depreciation Calculation Process Concept

Understanding the Depreciation Calculation Process

Understanding the Depreciation Calculation Process Step 1 Five main steps are required to calculate depreciation for an asset. First, you calculate the begin depreciation date. Next, you calculate remaining life and remaining value. Then you calculate yearly depreciation and the period depreciation allocation. Finally, you calculate prior period depreciation.

Understanding the Depreciation Calculation Process Step 2 To calculate the begin depreciation date, you can use the in-service date and prorate convention. The combination of the in-service date and the prorate convention determines when depreciation begins.

Understanding the Depreciation Calculation Process Step 3 Next, you calculate remaining value and remaining life. You use the remaining value to deduct accumulated depreciation from the cost basis and expense the remaining value over the remaining life of the asset. However, you use the remaining life to calculate the difference between the depreciation allowed and the depreciation taken. To calculate remaining value and remaining life, you use the information displayed on the screen.

Understanding the Depreciation Calculation Process Step 4 Calculations for remaining value and remaining life differ depending on which calculation type is used and the relationship between the begin depreciation date and the transaction date. The calculation is performed using the methods displayed on the screen.

Understanding the Depreciation Calculation Process Step 5 Next, you need to calculate yearly depreciation using the begin depreciation date and the depreciation method. Yearly depreciation calculation also uses information derived from the adjusted transaction date, life to date, and remaining value. However, calculations for the yearly depreciation differ depending on the type of calculation.

Understanding the Depreciation Calculation Process Step 6 Next, you need to calculate period depreciation allocation using the begin depreciation date and transaction date. Period calculations also use information derived from calculation type, adjusted transaction date, yearly depreciation, and number of periods in the year. However, calculations for the period allocation differ depending on whether depreciation is in service.

Understanding the Depreciation Calculation Process Step 7 Finally, you need to calculate prior period depreciation. Prior period depreciation is generally calculated only for life-todate calculations. For life-to-date calculations, the beginning calculation date depends on the begin depreciation date and the transaction date.

Understanding the Depreciation Calculation Process Step 8 You have identified the main steps for calculating depreciation. End of Procedure.