Depreciation Methods - Factors
We all know that the cost of using an asset is counted as depreciation. This is just spreading the cost over the time we use it, similar to including capital expenses (CAPEX) as operating expenses (OPEX). There are different ways to calculate depreciation, which can be confusing when choosing the right method for different assets. Now, leases are also considered part of the assets, even though the lessee doesn’t own them or use them for a long time.
If the user pays for repairs, these costs will increase as the asset gets older. If they use the Written Down Value (WDV) method, depreciation is higher in the early years and decreases as the asset nears the end of its useful life. This means the combined cost of depreciation and repairs evens out in the income statement, unlike the Straight Line Method (SLM). When the lessor pays for repairs and the lease period is short, SLM is a better choice.
The choice of depreciation method depends on the goal, type of asset, and who pays for repairs, among other factors.
By CA L.Muralidharan and CPA L.Mukundan
Visit www.sreeramcoachingpoint.com for more blogs
Contact: 6383228202 or 9884439769
Also use our app Gyanji for more utility and benefits
Best place of coaching for CPA, CMA USA & CA
