How is Depreciation determined for your Assets?
Depreciation is the decrease in value of an asset over time due to wear and tear, technological advancements, or other factors.
When you own assets like a car, a computer, or a piece of equipment, you know that over time they will start to lose value. This decrease in value is called depreciation, and it can have a big impact on your finances.
βIn many countries, depreciation rates are set by the National regulatory body.
Please consult your accountant for the life of the asset - depreciation rate of different types of assets.
π Depreciation happens for a few reasons
- Simply Wear and Tear: as you use your asset, it will start to show signs of aging, which can make it less valuable.
- Technological Advancements: as new and better models of your asset are released, older models become less desirable and therefore less valuable.
π’ Example
You buy a car for $20,000. Over the first year, the car might lose 20% of its value due to depreciation. That means the car is now worth $16,000.
How does it work on Modeliks?
The depreciation of assets is calculated using the straight-line method. You only need to input the asset's original cost and the number of months that it will be used.
βοΈ Montly depreciation = Original cost of asset Γ· lifetime value of the asset in months.
π§ To calculate the lifetime value of the asset in months, Modeliks multiplies the number of years by 12.
If an asset has a useful life of 5 years, the lifetime value of the asset in months would be 60 (5 years x 12 months) βοΈ
Both depreciation and amortization are non-cash expenses, meaning they don't involve actual cash outflows from the company. They are accounting methods used to distribute the cost of assets over their useful lives, providing a more accurate representation of expenses and financial performance over time.
Related Articles
How is Amortization determined for your Assets?
Amortization is a process similar to depreciation, but it applies to intangible assets rather than tangible ones. Intangible assets include items like patents, copyrights, trademarks, or licenses. These assets provide long-term value to a company, ...How are Assets grouped and classified?
An asset is a valuable resource that you own, such as money, property, equipment, or investments. It is something that a person or a company owns that has value and can be used to generate income or provide future economic benefits. Assets can be ...How to add your Assets in Modeliks?
Adding new assets to your company's portfolio is essential for predicting future benefits and optimizing your business strategy. ? To ensure that you are adding accurate data, it's important to understand how assets are categorized. Step 1 Let's get ...What is a Profit & Loss Statement?
This statement summarizes a company's financial performance and reveals whether it made a profit or suffered a loss during a specific time period. By understanding what this statement reveals, you'll gain a clearer picture of how a company is faring ...What is a Balance Sheet?
The balance sheet is a key financial statement that provides a snapshot of a company's financial position at a specific point in time. It presents the company's assets, liabilities, and shareholders' equity, offering valuable insights into its ...