subject: Get The Tax Benefits And More Accurate Financial Statements By Using A Good Depreciation Schedule [print this page] A depreciable asset has some of its cost charged against income each and every year and the amount to be charged is determined by the depreciation schedule. There are four different types of depreciation schedules, each providing the business with varying amounts of charges against the depreciable assets. These four different types of schedules are known as straight line depreciation, MACRS, double declining balance method, and sum-of-the-year's-digit method. Taking each type of depreciation method, the cost of the asset will depreciate differently and so one needs to choose which type suits individual needs best.
The straight line depreciation method is very simple and spreads the amount of depreciation to the asset evenly over the years that the asset will depreciate. For example, a hundred dollar asset will be fully depreciated over five years, which will also not have any residual value and so, allow the owner to claim twenty dollars depreciation each year for the entire five year period. However, there are other depreciation schedules which might have different depreciation percentages every year in which the amount of depreciation increases or accelerates with each successive year, being the lowest to begin with and gradually increasing with each passing year.
The second type of depreciation schedule is the MACRS and is for use only in the United States and stands for Modified Accelerated Cost Recovery System (ACRS) which is the modified version of the 1981 ACRS and is applicable to a specified class of assets. MACRS spells out different schedules to calculate depreciation costs for several different types of assets.
Most office equipment such as computing equipment is categorized as a "five year class" of property and this category may also include automobiles. This means that the depreciation period is of 60 months duration, which spans 6 fiscal years, with the 60 month period beginning from midway during the first year. There are a number of different variations and options in the MACRS schedules though mainly the usage is of applying the double declining balance method, beginning from midway in the first year. There is no residual value, also known as salvage value, and this is ignored by the MACRS. In the MACRS as well as DDB and SOYD schedules, the amount of depreciation claimed is far more in the beginning years and far less with the later years of depreciation.
The double declining balance method (DDB) is another type of accelerated depreciation that means having twice the annual prescribed depreciation rate and this rate is the double of the straight line depreciation method's rate. Under this method, the amount of depreciation applied to an asset is double of that applied using the straight line depreciation method.
The fourth and last type of depreciation schedule is the sum-of-the-year's digits (SOYD) method and is usually an accelerated depreciation method that is based on the inverted scale of total digits for the years that an asset will depreciate (the assets' depreciable life). Take for example an asset that needs to be depreciated for five years. In this instant case, the digits 1,2,3,4 and 5 are added together to produce the sum of 15. Accordingly, the first year's depreciation rate will be calculated as being 5/15 of the asset value (33.3%) and the second year's rate will be 4/15 or 26.7% and the third year will be 3/15 and so on, until the fifth year.
Buying a depreciation schedule spreadsheet from vendors who sell them on the market is a good alternative to creating one from scratch as the depreciation schedule needs to be very exact in calculating depreciation for all assets owned by the business and the pre-formatted depreciation schedules are the perfect and economical answer to these needs. For about ten dollars they provide a systematic and cost-effective solution to all the depreciation needs that any company or individual would be having. The depreciation schedule spreadsheet has different categories of assets and has a few examples to help the user along the way. Changing the categories does not pose any problem at all.
