06 Apr What is a Depreciation Schedule?
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A depreciation schedule helps a business to keep track of the decline in the value of its long-term assets. All assets do not depreciate at the same rate. The accounting department in a firm uses a depreciation schedule to maintain a record of the reduction in the value of its assets over the years. The schedule also contains a host of other information.
It is necessary for every business to maintain several types of details about each of its long-term assets. These assets are also known as fixed assets. The particulars that need to be recorded are:
What does depreciation schedule mean?
- The original cost and description of the asset.
- The date on which it was purchased.
- The length of time for which the company plans to use the asset.
- The estimated salvage or end value.
The depreciation schedule serves several useful purposes. Firstly, it helps a company to keep track of its assets. It also enables a business to create a plan to replace its assets and arrange the financing for this purpose.
This schedule provides another great benefit. If an asset breaks down and needs to be repaired, the information in the depreciation schedule can help the firm to decide whether it should be repaired or replaced.
Example of a depreciation schedule
Moller Corporation is a company that manufactures computer peripherals. Its depreciation schedule looks like this:
|Current Year: 2017|
|Cost of Fixed Assets||$51,000|
|Accumulated depreciation as of December 2017||$33,333.33|
|Fixed Assets, net of depreciation, as of December 2017||$17,666.67|
|Type of Asset||Date of acquisition||Cost $||Life of asset in years||Estimated end value $||Current year depreciation $||Cumulative depreciation $||Value net of depreciation $|
Depreciation is calculated by dividing the original cost of the asset minus its estimated end value by the number of years that the asset is expected to be in use. Using this method, depreciation of machinery is calculated in the following manner:
Original cost of machinery: $40,000
Estimated end value: $4,000
Amount to be depreciated over 4 years: $40,000 – $4,000 = $36,000
Yearly depreciation: $36,000 divided by 4 = $9,000
A quick reading of the depreciation schedule shows that Moller Corporation will need to replace its machinery at the end of 2018. New office equipment will have to be purchased at the end of 2020 and new furniture will be required at the end of 2019.
A depreciation schedule provides details about the original cost of the long-term assets of a company and their reduction in value over the years. Yearly depreciation is calculated after assuming a certain useful life for each asset as well as an estimated salvage value.