ABSTRACT
The depreciation can occur due to two main factors: deterioration and obsolescence. This chapter describes how business assets are claimed as business expenses over time. Business assets, regardless of their mode of depreciation, can be classified as either tangible or intangible. An asset is deemed as being tangible if it can be seen, felt or touched. The following terminologies are commonly used in calculating depreciation regardless of the method of calculation: purchase price, depreciation, book value, salvage value, and life of the asset. Straight line depreciation is the easiest and most familiar method of computing depreciation. The sum of years' digits deprecation method, (SOYD) is a depreciation method that results in higher depreciation charges upfront which progressively diminish charges over time. This method gets its name SOYD from the fact that the denominator of the aforementioned fraction is equal to the sum total of all years over which the asset will be depreciated.
