You can use the asset depreciation starter workbooks shown in Figures 15-1 through 15-5 to construct depreciation schedules using a variety of asset depreciation conventions.
Given three parameters—original cost, salvage value, and estimated life—these starter workbooks calculate the period depreciation, the accumulated depreciation, and the net book value for each period of the forecasting horizon. You need this information to calculate business profits and losses, to report asset balances on the balance sheet, and to calculate any gains or losses on the disposal of assets.
To enter your own data in an asset depreciation starter workbook, follow these steps:
- Open the appropriate asset depreciation starter workbook.
Use the straight-line depreciation starter workbook if you want to use straight-line depreciation. Use the declining balance depreciation starter workbook if you want to use declining balance, such as double-declining balance, depreciation. Use the sum-of-the-years’-digits depreciation starter workbook if you want to use sum-of-the-years’-digits depreciation. Use the annuity depreciation starter workbook if you want to use annuity or sinking fund depreciation. Finally, use the activity-based depreciation starter workbook if you want to use activity-based depreciation. Note: The straight-line depreciation starter workbook initially contains the default inputs shown in Figure 15-1. The declining balance depreciation starter workbook initially contains the default inputs shown in Figure 15-2. The sum-of-the-years’-digits depreciation starter workbook initially contains the default inputs shown in Figure 15-3. The annuity or sinking fund depreciation starter workbook initially contains the default inputs shown in Figure 15-4. Finally, the activity depreciation starter workbook initially contains the default inputs shown in Figure 15-5.
- Enter the original cost of the asset.
In cell B4, enter the original cost of acquiring an asset and placing it into service. In general, the Original Cost value should be the cost of acquiring and placing into service the asset that you are depreciating. This amount might include the asset purchase price, sales tax, shipping insurance costs, freight charges, and installation costs.
- Enter the salvage, or residual value, of the asset.
In cell B5, enter the salvage value of the asset or group of assets. If you’re using group or composite depreciation, enter the total cost of all the assets in the group. The Salvage Value figure is the residual value of the asset at the end of its estimated useful life.
- Enter the estimated useful life, or economic life, of the asset.
In cell B6, enter the estimated life of the asset. For tax accounting purposes, the useful life and salvage value sometimes are defined by tax law. For financial accounting purposes, previous experience with an asset might provide historical data for estimating the useful life. When you’re using sum-of-the-years’-digits or annuity depreciation, express the estimated life in integer format. Accordingly, if you’re depreciating an asset over two and a half years, instead of entering the estimated life as 2.5 (years), enter the estimated life as 30 (months). Note: If you are using the Annuity Depreciation Worksheet, remember to adjust the specified return on investment according to the guidelines from your regulatory agency. If you’re using activity-based depreciation, note that you need to specify the useful life in units of useful life.
- Provide any other data required for the depreciation calculations.
If you’re calculating declining balance depreciation, for example, enter the declining balance percentage you’ve selected or have been directed to use by your tax adviser in cell B7.If you’re calculating annuity-based depreciation, enter the specified return on investment in cell B7. If you’re calculating activity-based depreciation, enter the period units of use, starting in cell B11. Note: If you want to fully depreciate the asset using activity-based depreciation, be sure the sum of the period units of use equals the estimated life, calibrated in units of use. After you enter the required inputs, the starter workbook makes the calculations necessary to produce a depreciation schedule.