Accounting English

Depreciation: Narration, Part Four:

The method employed to allocate the cost of a tangible fixed asset to accounting periods is called depreciation method or method of depreciation.

Several methods exist and each of them is proper for certain circumstances, although not all of them are acceptable for income tax purposes.

The most common methods are:
- the activity method,
- the straight-line method,
- the sum-of-the-years'-digits method, and
- the declining-balance method.

The activity method is also known as the production method or the variable charge approach.

The sum-of-the-years'-digits method and the declining-balance method are called accelerated methods or decreasing charge methods.

The declining-balance method is based on a depreciation rate that is some multiple of the straight-line method. When twice the straight-line rate is used, the method is commonly referred to as the double-declining-balance method.

Depreciation: Narration, Part Four:

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