Units of Production Method of Depreciation In units of production method of depreciation, depreciation is charged according to the actual usage of the

asset. In units of production method, higher depreciation is charged when their is higher activity and less is charged when there is low level of operation. Zero depreciation is charged when the asset is idle for the whole period. This method is similar to straight-line method except that life of the asset is estimated in terms of number of operations or number of machine hours etc. Such a method is useful where a company has many fixed assets with varying usage. Formula The following formula is used to calculate depreciation under this method: Depreciation = Number of Units Produced (Cost Salvage Value) Life in Number of Units

Sum of the Years' Digits Method of Depreciation

Sum of the years' digits method of depreciation is one of the accelerated depreciation techniques which are based on the assumption that assets are generally more productive when they are new and their productivity decreases as they become old. The formula to calculate depreciation under SYD method is: SYD Depreciation = Depreciable Base Remaining Useful Life Sum of the Years' Digits

In the above formula, depreciable base is the difference between cost and salvage value of the asset and sum of the years' digits is the sum of the series: 1, 2, 3, ... , n ; where n is the useful life of the asset in years. Sum of the years' digits can be calculated more conveniently using the following formula: Sum of the Years' Digits = n(n+1) 2

Sum of the years' digits method can also be applied on monthly basis, in which case the above formula to calculate the sum of the years' digits becomes much useful.
Declining Balance Method of Depreciation

Declining balance method of depreciation is type of accelerated depreciation in which the amount of depreciation that is charged to an asset declines over time. In other words, more depreciation is charged in the beginning of the life time and less is charged during the end. Why more depreciation is charged in the beginning? The reason is that assets are usually more productive when they are new and their productivity declines continuously. This means that in the early years of their life time, they will be generating more revenue as compared to revenue generated in later years of their life. Now, according to the matching principle of accounting, we should depreciate more of the asset's cost in early years so as to match the depreciation expense with the revenue earned by the use of the asset. Formula and Calculation Procedure Declining balance depreciation is calculated by the following formula: Depreciation = Depreciation Rate Book Value of Asset Depreciation rate is given by following formula:

Depreciation Rate = Accelerator Straight Line Rate In the above formula, accelerator is the factor by which the depreciation rate is multiplied. The book value is the difference between cost of an asset and its accumulated depreciation. During the first period the accumulated depreciation is zero so book value is equal to cost. Since the book value decreases after each depreciation charge, therefore depreciation amount declines in successive charges. Depreciation is charged according to the above method as long as book value is less that salvage value of the asset. No more depreciation is provided when book value equals salvage value. Double Declining Balance Depreciation Method Double declining balance depreciation method is a type of declining balance depreciation method in which depreciation rate is double the straight-line depreciation rate. Thus when straight-line depreciation rate is 8%, double declining balance rate will be 2 8% = 16%. Straight-line Method of Depreciation In straight line depreciation method, depreciation is charged uniformly over the life of an asset. In this method, residual value of the asset is subtracted from its cost to get the depreciable amount. The depreciable amount is then divided by the useful life of the asset in number of periods to get the depreciation expense per period. Due to the simplicity of the straight line method of depreciation, it is the most commonly used depreciation method. Formula The formula to calculate the straight-line depreciation of an asset for a period is: Depreciation = Cost Salvage Value Life in Number of Periods

Depletion Expense

Depletion is an accounting concept which is similar to depreciation but it is mostly used in timber, mining and mineral oil extraction industries to refer to the gradual exhaustion of natural resource deposits such as coal mines, oil fields, etc. Unlike depreciable assets, natural resources do not wear out (i.e. depreciate) with passage of time but they actually lose value when the resource is being extracted. Therefore we differentiate between depletion and depreciation. The matching principle of accounting requires that amount of asset depleted in a given period must be expensed against the revenue in that period. Therefore, any method used for calculation of depletion expense must strictly obey the relevantaccounting principles. Formula Assuming a company sells all of the natural resource extracted within a given period, the formula to calculate depletion expense for the period will be: Depletion Expense = Cost Salvage Value Number of Units Extracted Estimated Number of Units

The cost of a natural resource includes developmental costs. Subtracting estimated salvage value (in any) from the cost gives us the depletable cost which is then divided by estimated number of units to obtain cost per unit of natural resource. Multiplying cost per unit by number of units extracted during the period gives us the depletion expense for the period.

This method to calculate depletion expense is similar to the units of production method of depreciation. However, if a company does not sell all of the resource extracted in a given period, the calculation process needs to be modified so as to record any unsold amount as inventory and not as depletion expense. This is explained using the following example:

Dear Mr./Ms. DORANADULA VENKATA SAI HEMANTH, We are glad to inform you that your ICAI User login request has been approved. Reference No : 509324 Login-id : SRO0411757-CPP Password : W658LY93 Note : Please note the difference between 0 (Zero) and 'o' (letter), 5 (Five) and S (letter) 2 (Two) and Z (letter) while using the Password. Use these details to Login at http://icaiexam.icai.org and apply for examination. Note: DO NOT OPEN MORE THAN ONE SESSION AT THE SAME TIME ON THE SAME COMPUTER WHILE FILLING THE ONLINE FORM. ie; do not fill more than one form at the same time on the same computer even if you are filling the two applications using different browsers or different tabs of the same browser. Clear the temporary internet files and cookies before filling up each form. Fill up the form at a suitable time and from a location where you have a good bandwidth available using browsers Internet Explorer versions (7.0 onwards), Mozilla Firefox(4.0 onwards), Google Chrome(8.0 onwards) or Safari(3.2 onwards). Do NOT fill the form using mobile phones. Check and ensure that Control Number, Bar code and Payment Particulars are appearing correctly in PDF before taking the print out. In case of any issues please report to onlineexamforms@icai.in

Please read the guidance notes carefully before filling the form. We wish you all success. Regards (ICAI Examination Department)