To calculate depreciation, certain prescribed approaches, called depreciation methods, must be used. The straight-line method results in deducting equal or ratable amounts of an asset's cost over the asset's useful life or depreciation (recovery) period. For example, a machine costing $1,000 for which a depreciation period is ten years would be depreciated at a rate of $100 each year. The rate of depreciation using the straight-line method is 10 percent ($100 annual depreciation divided by the $1,000 asset cost). The 200 percent (or double) declining balance method of calculating depreciation uses a rate twice the straight- line rate, or 20 percent in our example. The 150 percent declining- balance method uses a rate that is one and one-half times as fast as the straight-line method, or 15 percent in our example.
Subscribe to our email list to receive information on consumer webcasts and blogs, for practical legal information in simple English, delivered to your inbox. For more professional driven information, please visit Shenkman Law to subscribe.