What is a Depreciation Schedule?
Definition: A depreciation schedule is a chart that records the loss in value of a business’ assets for the whole period that the assets are useful in the operations of the business. This tool enables business owners to keep track of the value of their long-term assets. Additionally, the depreciation schedule is crucial when it comes to forecasting the depreciation expense as well as capital expenditures of a business.
The concept of the depreciation schedule is central to effective running of a company’s operations. Once the business gets a good grasp of the depreciation of its assets, it can plan its future operations better through efficient allocation of resources. This article explains and describes depreciation schedule.
To grasp the concept better, you should first understand depreciation, and why it is central to the theme of this article. From an accountant’s perspective, depreciation entails writing off of an asset’s value in a period that the asset is used. Depreciating of assets helps businesses to get their taxable income right. This is because the balance sheet captures the asset’s value while the income statement captures the depreciated amount of the asset.
Accountants depreciate assets in bits over their useful time. As such, the sum of all the depreciations gives the accumulated depreciation. These two concepts are crucial to the understanding of depreciation schedule. When filling up the table that makes the depreciation schedule, an accountant must record the current year’s asset depreciation along with the accumulated depreciation.
Types of Depreciation
Important to note, a deprecation schedule enables business owners to determine the net book value of their assets. If you sum up the net book value of all the assets in a depreciation schedule, you will get the net value of the business’ long-term (fixed) assets.
Nevertheless, how a business computes depreciation affects the asset’s net book value. Here is a look at the different methods an accountant can employ.
Depreciating by Straight-line method
This method simplifies depreciating whereby the accountant divides the value of the asset in question in equally among a given number of years. As such, the asset will depreciate by the same amount over the given number of years.
Depreciation by double-declining balance
In this method, an accountant will write off the expense amount twice that in the straight-line depreciation. The primary concept here is that assets are more valuable in the period immediately after their acquisition.
Depreciation by sum of years digits
Similar to double-declining balance, this method assumes that the asset value is higher in the period immediately after acquisition. As such, accountants write off larger expense amounts during this period than in the years near the end of the asset’s useful life.
Depreciating by units of production
This method is based on the frequency of utilization of the asset. If the asset produces many units in one year, the amount written off for that year will be higher than other years where the products were few.
How to Prepare a Depreciation Schedule
In preparation of a depreciation schedule, certain elements/information must be present. First, you must describe the asset (is it a computer or an office chair?), the date of purchasing the asset, and the amount spend to acquire the asset. Other details includethe number of years you expect the asset to be useful, the method you will use to depreciate the asset, the salvage value, the current year in which you are depreciating the asset, cumulative depreciation, and the assets net book value.
Depreciation Formula
James works at Company X and he has to prepare a depreciation schedule for the current year. The assets that James will focus on are furniture, two computers and a motorcycle. Here are some helpful depreciation formulas for preparing the depreciation schedule include:
Net book value = Cost – Cumulative depreciation
Current Year Depreciation (using straight-line method) = (cost – salvage value)/life
| DEPRECIATION SCHEDULE FOR COMPANY X | ||||||||
| Asset description | Date of purchase | Life | Cost | Method of depreciation | Salvage value | Depreciation for the current year | Cumulative depreciation | Net book value |
| Motorcycle | 12/02/19 | 3 | 1,000 | Straight-line | 390 | 203.33 | 609.99 | 390.01 |
| Computer A | 02/11/18 | 4 | 560 | Straight-line | 170 | 97.5 | 390 | 170 |
| Computer B | 19/06/19 | 4 | 560 | Straight-line | 170 | 97.5 | 390 | 170 |
| Furniture | 14/09/18 | 6 | 2,110 | Straight-line | 400 | 285 | 1,710 | 400 |