Decreasing Charge Method Essay

Companies have a choice among the many method actings available with which to assign the represent of fixed pluss they have acquired. One of type of these methods is the decreasing direct methods consisting of sum-of-the-years-digits and declining-balance method (author 525). Under these methods, the company allots a high portion of the salute of the plus in its earlier years than in later ones. Because of the higher toll allocation in the earlier year these methods ar likewise called the accelerated method (526). Sum-of-the-years-digits The name of this method is very descriptive of the reflexion used to compute derogation be.As one of the accelerated methods to allocate cost, sum-of-the-years-digits allocates a higher disparagement cost in the early life of the addition, with the depreciation cost decreasing each year (527). The first per centum of computing the depreciation cost under this method is to determine the depreciable cost of the plus, which is compute d by deducting the hold open value from the acquisition cost. The depreciable cost is multiplied by the rate of the depreciation for the year to arrive at the depreciation cost for the year. To compute for the rate of depreciation for the year, the years of the estimated life of the addition are added.This serves as the denominator. To illustrate an asset with a useful life of tether year will use a denominator of six computed as (3+2+1). The numerator is the estimated life of the asset at the beginning of the year. To illustrate the rate of depreciation to be used on the asset above on its secondment year of use is 2/6 or 1/3. This method of computing depreciation is characterized by a rate of depreciation that changes every year. At the end of the useful life of the asset, the remaining balance of the asset will be its salvage value. (527) Computing for the sum of the years for an asset with a very high estimated life can be time-consuming.Mathematicians came let on with a for mula to speed up the process. The formula is expressed as n(n+1) all over 2, with n as the estimated life of the asset. (527) Declining-balance Method The declining-balance method, on the other hand, uses a constant rate in computing the depreciation cost for the year. The rate is usually a multiple of the straight-line method. (527) To illustrate an asset with an estimated useful life of five years is depreciated at the rate of 20% under the straight-line method and at the rate of 40% under the declining-balance method.The rank used by the companies vary from industry to industry and from asset to asset (527). Unlike the sum-of-the-years-digits, the declining balance method do not deduct the salvage value of the asset when computing for the depreciation cost. Instead, the control value of the asset is multiplied by the rate of depreciation to arrive at the allocated cost for the year, and the process is repeated every year until such time that the book value of the asset is equal to the salvage value. The depreciation cost of the asset declines every year under this method because the book value is decrease every year by the depreciation cost. (527)