Methods for Calculating Depreciation

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Different methods are used to calculate the amount of depreciation charge. These are following:

(1) Revaluation Depreciation Method

(2) Straight Line Depreciation Method or Original Cost Method

(3) Reducing Balance Method

(4) Annual Depreciation under Reducing Balance and Straight Line Method

None of the above depreciation method is categorically best or worst as each method has its own pros and cons. Choice of a suitable method depends upon several factors out of which nature of the asset is more important. For instance; straight line method is more suitable for premises, furniture and intellectual properties etc. Reducing balance method is more appropriate for machinery, vehicles and etc. Revaluation method is usually used for loose tools, livestock and etc.