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.