DEPRECIATION METHOD

depreciation  method.A  set formula  used  in  estimating  an  asset’s  use,  wear,  or  obsolescence

over  the  asset’s  useful  life.  •  This  method  is  useful  in  calculating  the  allowable  annual  tax

deduction for depreciation. See USEFUL LIFE . [Cases: Internal Revenue    3470–3505; Taxation

1044.C.J.S.  Internal  Revenue  §§  223–249,  252,  259–265,  278,  489,  671,  673,  799; Taxation  §§

1741–1742.]

accelerated  depreciation  method.A  depreciation  method  that  yields  larger  deductions in  the

earlier years of an asset’s life and smaller deductions in the later years.

annuity  depreciation  method.A  depreciation  method  that  allows  for  a  return  of  imputed

interest on the undepreciated balance of an asset’s value. • The imputed interest is subtracted from

the current depreciation amount before it is credited to the accumulated depreciation accounts. declining-balance  depreciation  method.A  method  of  computing  the  annual  depreciation

allowance by multiplying the asset’s undepreciated cost each year by a uniform rate that may not

exceed double the straight-line rate or 150 percent.

double-declining  depreciation  method.A  depreciation  method  that  spreads  over  time  the

initial cost of a capital asset by deducting in each period twice the percentage recognized by the

straight-line method and applying that double percentage to the undepreciated balance existing at

the start of each period.

replacement-cost  depreciation  method.A  depreciation  method  that  fixes  an  asset’s  value  by

the price of its substitute.

sinking-fund depreciation method.A depreciation method that accounts for the time value of

money  by  setting  up  a  depreciation-reserve  account  that  earns  interest,  resulting  in  a  gradual

yearly increase in the depreciation deduction.

straight-line depreciation method.A depreciation method that writes off the cost or other basis

of the asset by deducting the expected salvage value from the initial cost of the capital asset, and

dividing the difference by the asset’s estimated useful life.

sum-of-the-years’-digits depreciation method.A method of calculating the annual depreciation

allowance  by  multiplying  the  depreciable  cost  basis  (cost  minus  salvage  value)  by  a  constantly

decreasing fraction, which is represented by the remaining years of useful life at the beginning of

each  year  divided  by  the  total  number  of  years  of  useful  life  at  the  time  of  acquisition.  —

Sometimes shortened to SYD method.

unit depreciation method.A depreciation method — directly related to the productivity of the

asset — that divides the asset’s value by the estimated total number of units to be produced, and

then  multiplies  the  unit  cost  by  the  number  of  units  sold  during  the  year,  representing  the

depreciation expense for the year.

units-of-output  depreciation  method.A  method  by  which  the  cost  of  a  depreciable  asset,

minus salvage value, is allocated  to  the  accounting  periods benefited  based  on  output (as  miles,

hours, number of times used, and the like).[Blacks Law 8th]