How do I calculate the depreciation of the building?

Depreciation can be defined as an amount that the asset or building loses value over time due to inevitable factors such as deterioration. Depreciation of building can be calculated in different ways, including direct line depreciation or by reducing balance method. The depreciation of a flat building is calculated by estimating the value of the property at the end of its lifetime and by means of their current value they deduct a specified percentage of their value each year. If the method of reduction balance is used, higher initial depreciation may be preferred, but the subsequent losses decrease each year.

Depreciation of a flat building is most often used because it is the least confusing method of calculating the loss of the value of the property. It may not be quite accurate, but gives the accounting company a tangible character to enter the profit and loss statement that helps simplify the annual accounts. It is not easy to determine how much building will depreciate for a long time; Each feature is different, so the direct line method does not need to be the best meansto calculate the loss of such asset.

Suppose that the company currently has a building worth $ 300,000 in the US (USD) and decides on the value of rescue after five years of $ 150,000. It takes the final value from the current costs and distributes it by the number of years of life. In this case, 300 000 - 150 000 $/5 = $ 30,000 annual depreciation. At the end of the year, the building will be $ 300,000 - $ 30,000 = $ 270,000. In the last year, the building will begin with $ 180,000 and will end with $ 150,000.

Balance building depreciation is more complicated, but provides a better idea of ​​the actual value of the property. This is calculated by multiplying the degree of depreciation with the current value of the property. The rate is usually two -use by doubled the estimated equal percentage.

In the above example, the rate is 10% and the fixed value of the building is $ 300,000. By reducing the depreciation of balance building, the rate would double to 20%.This means that the depreciation of the first year is 20% of $ 300,000 or $ 60,000, leaving the value of the building at the end of the year to $ 240,000. Instead of using $ 300,000 as a number for the second year, the initial value of $ 240,000 is used.

At the end of the second year, the building would have a value of 192 000 or 240 000 x 20%. The value of the property at the end of the year five would be $ 93,804. Although it may not be almost as high as the method of depreciation of straight buildings, it ensures that the company overvalves its assets. In the world of business, it is usually better to underestimate the value of assets to avoid unpleasant surprises later.