Accounting Depreciation:

The decrease in value of a fixed asset due to its usages with the passage of time is called depreciation. There are many depreciation methods that the entities could use but in the article, we will discuss two depreciation methods that normally used for the calculation of depreciation for the entity fixed assets.

We will also discuss how the accumulated depreciation is calculated for these two methods.

Accumulated Depreciation:

Accumulated depreciation is the sum of depreciation expense over the years. The carrying amount of fixed assets in the balance sheet is the difference between the cost of the asset and the total accumulated depreciation.

Accumulated depreciation is calculated by subtracting the estimated scrap/salvage value at the end of its useful life from the initial cost of an asset. And then divided by the number of the estimated useful life of an asset.

In trial balance, the accumulated depreciation expenses are the contra account of the fixed assets accounts.

If you are also familiar with provision for loan or account receivable, these are also the contra account of loans or receivables so that the loan or AR will be reported at the net in the balance sheet.

Fixed assets also the same things, they are reported at net of accumulated depreciation in the balance sheet at the end of the specific date.

The double entries that related to the accumulate expenses is generally as the following,

let say the opening balance of accumulated depreciation at the 1st Jan 2019 is USD400,000 and the depreciation charge in the year 2019 is USD40,000, then the entries are as following:

Dr_Depreciation expenses 40,000 (P&L)

Cr_Accumulated depreciation 40,000 (BS)

Total accumulated depreciation expenses at the end of 31 December 2019 is USD440,000.


That mean accumulated depreciation at 31 December 2019 is equal to opening balance amount USD400,000 plus depreciation charge during the year amount USD40,000.

Now, let discuss on how to calculate accumulate depreciation.

For example, we have fixed assets A and B with costs USD 500,000 and USD400,000, respectively, and useful life 10 and 20 years.

DescriptionDate of Purchase In (Rs.)Cost In (Rs.)Scrap Value In (Rs.)Useful life In (Years)Method
AJan 1st, 2002500,000100,00010Straight Line
BJuly 1st , 2002400,00080,00020Diminishing

Now, the depreciation formula for the straight line method will be:

Depreciation Expense = (Cost of Asset – Scrap value) / Useful life time.

                                        = (500,000 – 100,000) / 10

Note: Cost of Assets – Scrap Value is equal to 400,000, which is known as depreciable cost or depreciable value. It means that we cannot charge depreciation on scrap value (100,000), which is assumed the cost of the asset after useful life ends.


Depreciation expense = 400,000 / 10

= 40,000 p/year.

Accumulated depreciation will be the determine by sum up all the depreciation expense up to the date of reporting.

Let suppose if the company’s financial year ends on June 30th, of each year. Therefore, we cannot charge the depreciation for a whole in the Income Statement of the Financial Year 2002-2003, because machine A has been used for six months this year.

Therefore, we will divide the annual depreciation expense by 12 and multiply with the number of months in which it is used. i. e

                Depreciation Expense = (40,000 * 6) / 12

                                                        = 20,000 (depreciation for 6 months)

Accumulated Schedule Using Straight Line Method:

This calculation will be for the first and last year of Asset A. Now the depreciation expenses and accumulated depreciation will be looks like:

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S.No Accounting Period Cost of AssetDepreciation Accumulated Depreciation Current Value
1 2003500,00020,000 20,000480,000
2 2004480,00040,000 60,000440,000
3 2005440,00040,000 100,000400,000
4 2006400,00040,000 140,000360,000
5 2007360,00040,000 180,000320,000
6 2008320,00040,000 220,000280,000
7 2009280,00040,000 260,000240,000
8 2010240,00040,000 300,000200,000
9 2011200,00040,000 340,000160,000
10 2012160,00040,000 380,000120,000
11 2013120,00020,000 400,000100,000

Accumulated Depreciation Schedule Using Declining Method:

Now, let’s calculate the depreciation expense for Asset B by using Diminishing or Declining Method.

Remember, in this method we apply a percentage on face value to calculate the Depreciation Expenses during first year of its useful life.

For the next of years, we apply the same percentage on the booked of written down value of the asset, but the value of the percentage is not given in the data, we have. But we can calculate it with the help of the following formula.

Rate of Depreciation = 1 – (Scrap value / cost value)1/n

                                       = 1 (80,000 / 400,000)1/20

                                       = 7.73    when rounded = 8%

Noted: (n = number of years)

Now, For Asset B, the calculation of depreciation expense table will be as following.

Financial YearCost Value %ageDepreciation Expense for the periodAccumulated Depreciation ExpWritten Down Value of the Asset= (cost – Dep)
2003400,000 8 32,000 32,000 368,000
2004368,000 8 29,440 61,440 338,560
2005338,560 8 27,085 88,525 311,475
2006311,475 8 24,918 113,443 286,557
2007286,557 8 22,925 136,367 263,633
2008263,633 8 21,091 157,458 242,542
2009242,542 8 19,403 176,861 223,139
2010223,139 8 17,851 194,712 205,288
2011205,288 8 16,423 211,135 188,865
2012188,865 8 15,109 226,245 173,755
2013173,755 8 13,900 240,145 159,855
2014159,855 8 12,788 252,933 147,067
2015147,067 8 11,765 264,699 135,301
2016135,301 8 10,824 275,523 124,477
2017124,477 8 9,958 285,481 114,519
2018114,519 8 9,162 294,643 105,357
2019105,357 8 8,429 303,071 96,929
202096,929 8 7,754 310,825 89,175
202189,175 8 7,134 317,959 82,041
202282,041 8 6,563 324,523 75,477

Total accumulated depreciation at the end of the period is not generally reported in the face of financial statements. You can only see the net of fixed assets.

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However, you could see how much is the costs of fixed assets, fixed assets addition during the year or period, depreciation expenses charged during the year, and the total accumulated depreciation up the ending of the reporting period in the noted to financial statements.

It is important to note that the way how accumulated depreciation expenses are not charging due to the changing of the depreciation method.

The method or the formula use to calculate depreciation is

Opening balance of accumulated depreciation USDXXX


Depreciation expenses charge during the year/period USDXXX

If there is no opening of accumulated depreciation, then the ending balance is equal to the amount charge during the year.