Category: Depreciation

Uniform Charge Methods 

In case of these methods depreciation is charged on uniform basis year after year. Such methods are considered appropriate only for such assets which are uniformly productive. Following three methods fall in this category.

Fixed instalment method. This is also termed as Straight Line Method (SLM).

According to this method, depreciation is charged evenly every year throughout the effective life of the asset The amount of depreciation is calculated as follows.

 Depreciation = Original Cost of the Fixed Asset — Estimated Scrap Value/ Life of tie Asset in Number of Accounting Periods

Depreciation to be charged each year can also be expresscd as a percentage of cost.

Merits. (I) The method is simple to understand and easy to apply.

(ii) The value of the asset can be reduced to zero (or its scrap value) under this method. 

FIXATION OF DEPRECIATION AMOUNT

Following are the three important factors which should be considered for determining the amount of depreciation to be charged to the Profit and Loss Account in respect of a particular asset.

1. Cost of the asset The cost of the asset includes the invoice price of the asset, less any trade discount pius all costs essential to bring the asset to a useahie condition. It should be noted that financial charges, such as interest on money borrowed for the purchase of the asset, should not be included in the cost of the asset.

2. Estimated scrap value. The term scrap value means the residual or the salvage value which is estimated to be realised on account of the sale of the asset at the end of its useful life. In determining the scrap value, the cost to be incurred in the disposal or removing of the asset should be deducted out of the total realisable value.

3. Estimated useful life. This is also termed as economic lift of the asset. This may be calculated in terms of years, months, hours, units of output of other operating measures such as kilometers in case of a taxi or a truck.