Depreciation Schedule

Publication Date :

27 Jan, 2025

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Table Of Contents

What Is Depreciation Schedule?

A depreciation schedule is a chart, table, or schedule that outlines the timeline of an asset's depreciation over its lifetime. It tracks the depreciation expenses incurred by the business over time, serving as a tool for financial planning.

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Assets with extended usage times are not fully expensed at the time of purchase. Preparing a schedule helps spread their cost over the asset's estimated useful life. The schedule primarily aids in tracking the depreciation already recognized, helping businesses manage their finances efficiently.

Key Takeaways

Depreciation schedules are records, often presented in tabular form, that help businesses track their depreciation expenses. These expenses reflect the diminishing value of assets over time.
Assets owned by the business with more than one year of useful life are subject to depreciation.
Key components include the asset's original cost, name, model, estimated useful life, salvage value, date of acquisition, and depreciation methods.
Schedules help businesses spread costs over time, make informed decisions, and manage investments and risks. The schedule also assists in the preparation of financial statements.

Depreciation Schedule Explained

A depreciation schedule is a table, schedule, or chart that helps businesses track the depreciation expenses of assets over the years. It is prepared to monitor expenses that arise due to depreciation, which occurs because assets with high monetary value are used over extended periods. Depreciation expenses represent the diminishing value of an asset due to prolonged use.

Depreciation is considered a non-cash expense for accounting purposes. The schedule acts as a financial tool for reporting, recording, and tracking the asset's value, and helps businesses develop an asset-use strategy. Any asset that will not be consumed within one year is depreciable, provided the business owns the asset and uses it to generate profit.

Land is an exception, according to the Financial Accounting Standards Board (FASB). It is important to note that businesses cannot claim the full value of an asset in a single year. According to generally accepted accounting principles (GAAP), methods like the straight-line method, double-declining balance, sum-of-the-years-digits, and units-of-production methods are commonly used. It's also worth noting that the elements included in a depreciation schedule can vary from company to company, depending on the information they choose to disclose and the method they use to calculate depreciation.

Key Components

The key components of the depreciation schedule are as follows:

Asset Description: This includes the name, model number, serial number, and other identifying details of the asset.
Cost of the Asset: Businesses should record the asset's original cost, including any expenses incurred to acquire and prepare it for use.
Date of Asset Acquisition: This is the date the asset was put into use. It marks the beginning of the asset's depreciation.
Estimated Useful Life: This refers to the period during which the asset will be useful to the business. It is typically based on industry standards and the manufacturer's recommendations.
Salvage Value: After its useful life, the asset may still have some residual value, known as the salvage value. Depreciation is calculated by subtracting the salvage value from the asset's original cost.
Accumulated Depreciation and Depreciation Methods: Accumulated depreciation is the total depreciation recorded for the asset to date. The method of depreciation chosen will affect how the depreciation value is calculated over time.
Book Value and Depreciation Expenses: Book value represents the asset’s cost after deducting accumulated depreciation. Depreciation expenses refer to the amount recorded for the current accounting period.

How To Create?

The steps for creating a depreciation schedule for assets are as follows:

Choosing the Depreciation Method: There are different methods of depreciation, such as the straight-line method, declining balance method, and units of production. Businesses should select the method that best suits their needs.
Determination of Asset Cost: Businesses must record the asset's total cost, which includes import duties, purchase price, transportation, and installation charges. This encompasses all expenses incurred to bring the asset into service.
Estimation of the Useful Life of the Asset: Businesses should estimate the asset's useful life, which is determined by factors such as the intensity of usage, potential technological obsolescence, and the asset's overall quality.
Calculation of Salvage or Residual Value: The salvage value is the estimated amount the asset will be worth at the end of its useful life. This figure helps determine the total amount to be depreciated.
Creation of the Schedule: The final steps involve creating the depreciation schedule, recording depreciation expenses, and reviewing and adjusting the schedule when necessary.

Examples

Let us look at some of the examples to understand the concept better.

Example #1 - A hypothetical example

Imagine, Dan is a business owner and has a manufacturing unit for clothes. He has several machines, plants and equipment that will depreciate over time. Dan hence decides to create depreciation schedules for rental property, machinery etc., to understand the depreciation timeline. He chooses the units of the output method. This method uses measures of the output of products rather than the passing of time. It involves the calculation of units of production rate and depreciation expenses.

Units of rate of production = (cost of asset basis – salvage value of assets) / estimated units

Suppose his equipment costs $20,000, the salvage value is $2000, and the expected rate of use is 30000 person-hours.

Units of rate of production = (cost of asset basis – salvage value of assets) / estimated units

The units of production rate would be $20000-$2000/30000=$ 0.6 depreciation value per year.

Suppose the house worked by the equipment for the first year was $7000 hours; then the depreciation expense for that year would be 7000* 0.6 = $4200.

Example #2 - A template that can be used in real life

Serial number	Asset class	Department of use	Purchase amount	Date of purchase	Depreciation period	Depreciation amount	Remarks	Cumulative depreciation

Benefits

The following are some of the key benefits of a depreciation schedule:

It spreads the cost of an asset over several periods, matching expenses with the revenue generated by the asset. This aids in accurate expense allocation.
It allows businesses to claim depreciation as a tax deduction, reducing taxable income.
It helps track asset values, plan for replacements, and manage an asset's life cycle.
It provides a clear view of an asset's useful value over time, enabling accurate recording and proper financial reporting.
It aids in managing expenses and can be used in depreciation schedules for rental properties, machinery, etc.
It assists in planning the purchase of new fixed assets supporting investment planning.
The schedule records important details like the asset's initial cost, useful life, and the depreciation method used, making audits easier.
It helps in determining both tax depreciation schedules and fixed asset depreciation schedules.
It enables management to make informed decisions regarding assets.
It provides accurate asset valuations, which can reduce insurance premiums by avoiding overvaluation. Undervaluation poses risks, so the schedule helps with risk and investment management.