Lesson Corporate Finance: Calculation of the Depreciation Schedule

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This Lesson (Corporate Finance: Calculation of the Depreciation Schedule) was created by by Shruti_Mishra(0) About Me : View Source, Show
About Shruti_Mishra: I am a maths graduate from India and am currently persuing masters in Operations Research.
The depreciation schedule shows the value remaining of the asset after a period and the depreciation expense in that period. The format of the depreciation schedule is:
Year Value of the Asset Depreciation Cumulative Depreciation

The depreciation schedule is constructed differently for different methods. The two methods of calculating depreciation are discussed below:

Straight Line Method: In this methods the value of the asset reduces by a fixed amount every year till the value reaches its salvage value at the end of its life. The formula for calculating the depreciation is:
Depreciation+=+%28OriginalValue-SalvageValue%29%2FTime

Example: Make the depreciation schedule for an asset with original value = $10,000, Salvage value = 0 and useful life = 5 years.
Year (End of) Value of the Asset Depreciation Cumulative Depreciation
0 10,000 0 0
1 8,000 2,000 2,000
2 6,000 2,000 4,000
3 4,000 2,000 6,000
4 2,000 2,000 8,000
5 0 2,000 10,000

Reducing Balance Method: The formulas for calculation for this method are given in the lesson on the Different Methods of Depreciation.
Example: Make the depreciation schedule for an asset with original value = $10,000 and Depreciation factor = 40%.

Year (End of) Value of the Asset Depreciation for the year Cumulative Depreciation
0 10,000 0 0
1 6,000 4,000 4,000
2 3,600 2,400 6,400
3 2,160 1,440 7,840
4 1,296 864 8,704
5 777.6 518.4 9222.4
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