Types of Depreciation

1) Straight Line Method

2) Written down value method

Straight Line Depreciation Calculation

(Purchase Price of Asset - Approximate Salvage Value) ÷ Estimated Useful
Life of Asset

Example: You buy a new computer for your business costing approximately
$5,000. You expect a salvage value of $200 selling parts when you dispose of it.
Accounting rules allow a maximum useful life of five years for computers. In the
past, your business has upgraded its hardware every three years, so you think
this is a more realistic estimate of useful life, since you are apt to dispose
of the computer at that time. Using that information, you would plug it into the
formula:

($5,000 purchase price - $200 approximate salvage value) ÷ 3 years estimated
useful life

The answer, $1,600, is the depreciation charges your business would take
annually if you were using the straight line method.

Written down Value method

Diminishing Balance Method or Written Down Value Method

Under this method, depreciation is charged at a fixed rate every year but on
reducing balance i.e., on balance reduced each year during the economic life of
the asset by the amount of depreciation till the asset is reduced to its scrap
value.

For example, if the cost of the asset is Rs. 1,000 the rate of depreciation
is 10 % on Rs. 1,000 i.e., Rs. 100, in the second year, it will be 10 % on Rs
900 i.e., Rs. 90 is the third year, it will be 10 % on Rs 810 (900-90) i.e., Rs.
81 and so on.