Question

What method(s) of depreciation does your company use? Does the company use the same method of depreciation for all types of long-lived assets? Where did you find this information?

Company is Target CORPORATION

Answer 1

Various Depreciation methods

• Straight Line Depreciation method
• Diminishing balance method
• sum of year's digits method
• Double declining balance method
• Sinking fund method
• Annuity method
• Insurance policy method
• Discounted cash flow method etc...

Most Commonly used depreciation method is straight line method. The depreciation is offers in many way business to recover the cost of an eligible asset bt writing of the expenses over the courses of the useful life of the asset. The most commonly used method for calculating depreciation under generally accepted accounting principles, or GAAP, is the straight line method.

This uniform amount is charged the asset gets reduced to nil or its salvage value at the end of its estimated useful in life.

So, This method derives its name from a straight line graph method.This graph is deduced after plotting an equal amount of depreciation for each accounting period over the useful life of the asset.

Thus, the amount of depreciation is calculated by simply dividing the difference of original cost or book value of the fixed asset and the salvage value by useful life of the asset.

The formula for annual depreciation under straight line method is as follows:

Annual Depreciation Expense = (Cost of an asset – Salvage Value)/Useful life of an asset.

• Cost of the asset is purchase price or historical cost
• Salvage value is value of the asset remaining after its useful life

Useful life of the asset is the number of years for which an asset is expected to be used by the business.

Exampe

Consider a piece of equipment that costs $25,000 with an estimated useful life of 8 years and a $0 salvage value. The depreciation expense per year for this equipment would be as follows:

Year		1	2	3	4	5	6	7	8
Straight Line
Opening Book value		25000	21875	18750	15625	12500	9375	6250	3125
Depreciation	8	3125	3125	3125	3125	3125	3125	3125	3125
Ending book value	25000	21875	18750	15625	12500	9375	6250	3125	-

Depreciation Expense = ($25,000 – $0) / 8 = $3,125 per year

First of all, We discussed what is long lived asset?

A long lived asset is a asset that a business expects to retain for ateast one year. This definition can be broadened to include any asset that is expected to be retained for more than one accounting period. Long lived assets are usually classified into two categories, which are:

• Tangible long lived assets:Included in this category are such assets as furniture and fixtures, manufacturing equipment, buildings, vehicles, and computer equipment.

• Intangible long lived assets. Included in this category are such assets as copyrights, patents, and licenses.

And especially the goodwill is also considered a long lived asset. Goodwill is the residual amount of the payment made for an acquiree that cannot be associated with any specific assets or liabilities.Goodwill is tested periodically to see if the fair value of the underlying acquiree assets and liabilities.

yes, the company use the straight line method of depreciation for all types of long-lived assets. When using the straight-line method, a company charges the same depreciation expense in every accounting period throughout an asset's useful life, so the effect is a stable and uniform reduction in revenues and asset values in every accounting period of the asset's useful life. and commonly the straight line method is very useful and it is very easy to calulate the depeciation of long lived asset in corporate company. because, it hence that the straight line method which is fixed depreciation in each year so, it is very helpfull in corporation of company in long lived asset.

References

• Accounting, Audit & Advisory.
• Financial Accounting.