How to Calculate Depreciation Expenses of Computer Equipment?

Any sort of computer equipment used in your business or indirectly/directly produces income would classify as fixed assets until and unless it is included in the inventory of the business. Inventory is a current asset and it is not subject to depreciation, whereas computer equipment is a non-current asset.

This is because inventory generates economic benefits but has a useful life of less than a year whereas computer equipment generates economic benefits over a useful life of more than a year. Some examples of computer equipment are listed below:

  • Printer
  • Scanner
  • Pen tablet
  • Hard disk drive
  • Desktop
  • Personnel computer

According to the international accounting standards, any capital expenditure should be capitalized and booked as a non-current asset on the balance sheet. All of the non-current assets that the entity records in its balance sheet including the computer equipment need to be depreciated regularly such as monthly and annually.

What is depreciation?

Depreciation is a quantitative measure of how much the asset has been used. It is a non-cash revenue expenditure annually reported on the income statement of every entity holding fixed assets.

There are 4 ways that an asset can be depreciated i.e.

We can calculate the depreciation of office equipment through any of these methods. However, the most appropriate methods would be the double-declining and sum of year’s digits since these methods charge higher depreciation in the early years of the useful life of the asset. Since office equipment loses its value rapidly due to obsolescence the most accurate methods would be the ones charging higher depreciation in the early years.

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However, I’ll show you the depreciation of equipment through all depreciation methods. It is also important to note that the company needs to review the useful life and impairment of the computer equipment annually.

Calculation through straight line method:

Example: Ali bought a printer for his office at a cost of $5,050. He plans to sell the scrap at the end of its useful life of 5 years for $50. Calculate the annual depreciation Ali should book for 5 years.

The formula to calculate annual depreciation through straight-line method is:

= (Cost – Scrap Value)/ Useful Life

= ($5,050 – $50)/5

= $1,000

The annual depreciation expense for Ali would be $1,000.

Calculation through sum of year’s digits method:

Example: Ali bought a pen tablet for a cost of $7,000 having a useful life of 3 years. Ali depreciates his assets using the sum of the year’s digits method. Calculate the depreciation expense of Ali for 3 years.

The formula to calculate depreciation through sum of year’s digits is as follows:

= Depreciable Amount * (Remaining Useful Life at the Start of Year / Sum of Year’s Digits)

Where, depreciable amount is cost less scrap value:

Year Working Depreciation expense($)
1 $7,000*3/ (3+2+1) 3,500
2 $7,000*2/ (3+2+1) 2,333
3 $7,000*1/ (3+2+1) 1,167

Calculation through units of production:

Example: Ali has a book-printing business and he depreciates his printer on a unit basis. It was expected that the current printer has a capacity of 100,000 pages when bought 2 years ago at a cost of $10,000.

Ali had a total production of 35,000 pages this year. Calculate his annual depreciation for the year. The formula for calculating annual depreciation through this method is:

Depreciable amount * (Units Produced This Year / Expected Units of Production)

Where, the depreciable amount is cost less scrap value, as mentioned above.

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Hence Ali should book a depreciation expense of $3,500 based on the calculation shown below:

$10,000 * (35,000/100,000) = $3,500

Calculation through double declining method:

Example: Ali purchased a scanner a year ago in 2018 for $8,500 and estimated a scrap value of $500.

He has a policy of charging depreciation at a rate of 15% at the reducing balance method. Calculate his annual depreciation expense for the year ended 2019.

The formula to calculate depreciation through the double-declining method is:

(Not Book Value – Scrap value) * Depreciation rate

Where NBV is costs less accumulated depreciation.

Hence, the depreciation expense for 2018 was (8500-500) *15% = $1200.

The opening NBV for 2019 would be $7,300 (8500 – 1200). The depreciation expense for 2019 shall be $1,020 according to the working shown below: (7300 – 500) * 15% = $1,020