Accounting help

[ChaoZ]

I'm confused as to why we depreciate using cost and some using book value.

Ex/ Machinery has a cost of $1,000,000 and accumulated depreciation of $100,000. Say I also buy more machinery during the year.

If I'm using straight-line method, I depreciate the $1m ignoring the $100k. Then add the new machinery and depreciate that.

If I'm using declining balance method, I take the book value, add the new machinery and depreciate on the total amount.

Why is that? I don't get it?

 

[Finalnight]

Ignore the why, only the do, or if you really wanna screw yourself up, calculate sum of years method.

 

[Xcobra]

there isnt much difference between the SL and double-declining except for the fact that SL ignores the salvage value. Also, I dont understand what the confusion is, they both accumulate depreciation and thats what you subtract from BV at the end of the year. In double-declining, you have a fixed rate that you are going to subtract from your machinery, but SL has a fixed value that you will subtract. In the end, they BOTH subtract depreciation based on the book value. Also, sum-of-the-years is tedious and boring lol

 

[KarmaPolice]

They both work, just depends on what your goal is...do you want to depretiate it fast/slow and so forth.