Would anybody give me details on how to practically calculate the depreciation of a used excavator?
With regards.
With regards.
Depreciation value of an excavator
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HockeyPuck
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Would something like this be what you're looking for?
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Depreciation Schedule Template
Download a Depreciation Schedule Template for Excel. Includes straight-line depreciation and declining balance depreciation methods for financial reporting.
www.vertex42.com
If you are using the straight-line depreciation method, the value of an asset is reduced uniformly over each period until it reaches its salvage value. It is calculated by simply dividing the cost of an asset, less its salvage value, by the useful life of the asset.
The straight line depreciation formula for an asset is as follows:
Annual Depreciation expense = (cost of the asset - salvage value) / useful life of the asset
Where:
Cost of the asset is the purchase price of the asset
Salvage value is the value of the asset at the end of its useful life
The useful life of asset represents the number of periods in which the asset is expected to be used by the company
Additionally, the straight line depreciation rate can be calculated as follows:
SLDR (straight line depreciation rate) = Annual Depreciation Expense /( cost of the asset - salvage value)
How to Calculate Straight Line Depreciation
The straight line calculation steps are:
- Determine the cost of the asset.
- Subtract the estimated salvage value of the asset from the cost of the asset to get the total depreciable amount.
- Determine the useful life of the asset.
- Divide the sum of step (2) by the number arrived at in step (3) to get the annual depreciation amount.
Example:
Company A purchases a machine for Rs 100,000 (the currency you may consider as per your country or location or cost of the machine respectively) with an estimated salvage value of Rs 20,000 and a useful life of 5 years.
The straight line depreciation for the machine would be calculated as follows:
- Cost of the asset: Rs 100,000
- Cost of the asset – Estimated salvage value: Rs 100,000 – Rs 20,000 = Rs 80,000 total depreciable cost
- The useful life of the asset: 5 years
- Divide step (2) by step (3): Rs 80,000 / 5 years = Rs16,000 annual depreciation amount
The depreciation rate can also be calculated if the annual depreciation amount is known.
The depreciation rate is the annual depreciation amount / total depreciable cost. In this case, the machine has a straight-line depreciation rate of Rs 16,000 / Rs 80,000 = 20%.
Note how the book value of the machine at the end of year 5 is the same as the salvage value. Over the useful life of an asset, the value of an asset should depreciate to its salvage value.
Other Methods of Depreciation
In addition to straight-line depreciation, there are also other methods of calculating depreciation of an asset. Different methods of asset depreciation are used to more accurately reflect the depreciation and current value of an asset. A company may elect to use one depreciation method over another in order to gain tax or cash flow advantages.
1. Double-declining balance method
The double declining balance method is a form of accelerated depreciation. It means that the asset will be depreciated faster than with the straight-line method. A double declining balance method results in higher depreciation expenses in the beginning of an asset’s life and lower depreciation expenses later. This method is used with assets that quickly lose value early in their useful life.
2. Units of production method
The units of production method is based on an asset’s usage, activity, or parts produced. Therefore, depreciation would be higher in periods of high usage and lower in periods of low usage. This method can be used to depreciate assets where variation in usage is an important factor, such as cars based on miles driven or photocopiers on copies made.
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