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What are some of the depreciation methods in accounting?

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Quick Answer

Straight-line and activity, or unit of production, depreciation are some of the methods by which accountants calculate depreciation, notes SFGate. Business owners use depreciation of tangible assets such as computers, machinery or vehicles to spread out their costs and to gain insight into the financial health of their companies.

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Full Answer

Accountants use the straight-line depreciation method for equipment such as heavy machinery that has consistent production levels over the course of its life, states SFGate. They compute depreciation with this method by subtracting the eventual scrap value of the machinery from its initial cost, and dividing the result by the number of years the machinery is expected to remain useful. The resulting amount is the depreciation charge per year for that machinery, which is consistent each year it is in use.

For assets whose worth is tied to their productivity, such as vehicles, accountants may choose to use the activity method of depreciation, according to SFGate. To calculate depreciation using this method, accountants subtract the scrap value of the asset from its initial cost to establish a baseline. The result is then divided by the total expected productivity of the asset's useful life, such as total mileage expected during the life course of a vehicle. After they have computed this value per unit of productivity, accountants multiply it by the productivity of that machinery in a given year to determine that year's depreciation.

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