Mar 11 2014 03:31 PM
One of the most common methods that businesses use is straight-line depreciation. With straight-line depreciation, you take the same amount of depreciation each year over the useful life of the property. For example, if a piece of equipment costs $120,000, lasts five years and has a $20,000 salvage value, you would take the amount of depreciation and divide it equally by five years. In this case, you would take $20,000 of depreciation each year for the five years.
Another method of depreciation is the double-declining balance approach. This approach is a type of accelerated depreciation method that results in bigger depreciation in the first few years of the asset and smaller amounts in the later years. With this option, you choose a percentage to depreciate the property by each year. According to Principles of Accounting, "a fixed percentage of the straight-line rate (i.e., 200 percent or "double") is multiplied times the remaining book value of an asset."