Factors Affecting Depreciation Amount

Following factors should be considered while determining the amount of depreciation or depreciation expense:

1. Acquisition Cost Or Original Cost

Acquisition cost or total cost of the asset is the main factor to determine the amount of depreciation. Depreciation expense is calculated on the basis of total cost of an asset. This cost includes:

* Purchase price of an asset
* Transportation or shipping cost
* Installation charge
* Import Duty
* Fitting charge

2. Estimated Life Of Asset

Working life of an asset is another key factor that should be considered while calculating depreciation expense. Less amount of depreciation is charged for the asset with longer useful life and vice versa.

3. Estimated Residual Value Of Asset

Residual value or scrap value of the asset should be deducted while determining the amount of depreciation.

4. Depreciation Method

There are different methods for determining the amount of depreciation such as fixed installment method, annuity method, revaluation method, diminishing balance method, machine hour rate method etc.. So, the amount of depreciation also depends on the method of providing depreciation.


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