What Is Accumulated Depreciation?
the cumulative depreciation which is charged on an asset throughout its life is termed out as or defined as the Accumulated Depreciation. Or the other words, you can say that it is the total amount of depreciation charged on any fixed asset which includes in it all the expenses in occurred on the fixed asset from the time it was purchased to till date.
Though, the Accumulated Depreciation has a credit balance which means that it appears on the liabilities side of the balance sheet.
The depreciation basically reduces the total or gross cost of the asset. Though, in case of accumulated depreciation, it keeps on increasing as the time passes by as the depreciation is being charged on the assets.
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Accumulated Depreciation definition:
The Accumulated Depreciation defines the sum total of all the depreciation which is recorded or noted down for some of the assets.
The Formula for accumulated depreciation:
Accumulated Depreciation = Cost of the asset – salvage value / useful life of the asset
How to Calculate Monthly Accumulated Depreciation?
Though, the depreciation calculation makes use of 3 basic things which are:
- The useful lifespan of an asset
- Expenses incurred, and
- The accounting method used for calculation.
So, the calculation of accumulated depreciation is quite simple based on the following formula as:
Accumulated depreciation = Cost of the asset – salvage value / useful life of the asset
Accumulated Depreciation can be calculated making use of the two methods of calculating depreciation, which is as follows:
- Straight-line method
- Declining Balance Method
- Straight-line method
Under the Straight-line method of depreciation, a similar or same amount of depreciation is charged for the whole year for its usage. You can calculate the Straight-line depreciation as:
By subtracting the salvage value of the asset from the total cost of the asset.
Now, you need to divide the resultant amount by the lifespan or the total number of years of the life of the asset.
And then divide the amount by 12, in order to get the monthly depreciation of the asset.
- Declining Balance Method
Under the Declining Balance Method of depreciation, there is a change in the amount of depreciation from year to year or month to month based on the cost of the depreciation or the rate of depreciation used to decline the assets.
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Thus, using a Straight-line depreciation method is quite simple and easy.
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Accumulated Depreciation in the Balance sheet:
Accumulated Depreciation is shown up in the balance sheet as follows:
| Long-Term Assets | |
| Land and Buildings | $ 400,000 |
| Furniture and Fixtures | $ 55,000 |
| Leasehold Progresses | $ 54,000 |
| Vehicles | $ 128,000 |
| $ 6,37,000 | |
| Less: Accumulated Depreciation | $ 80,000 |
| Total Assets | $ 5,57,000 |
As shown above, the following long term assets are depreciated off. Though in the case of land & building we do not depreciate land but in all the cost of the building is depreciated.
And all the other i.e. Furniture and Fixtures, Leasehold Progresses, Vehicles holds their separate account in which the accumulated depreciation is shown off.
Other than this, for a single asset balance sheet of Accumulated Depreciation is as follows:
| Particulars | Amount ( in $ ) |
| Cost of Equipment | $ 459,000 |
| Less Accumulated Depreciation | $ 23,000 |
| Book Value of Equipment | $ 4,36,000 |
Accumulated Depreciation Examples:
Example 1: PQR Ltd purchased machinery for $ 200,000 three years ago. The machinery depreciates by $ 8,000 a year. Calculate the Accumulated Depreciation for the machinery of PQR Ltd company.
Solution:
Accumulated depreciation = $ 8,000 (depreciation For the year 1) + $ 8,000 (depreciation For the year 2) + $ 8,000 (depreciation For the year 3) = $ 24,000.
So, the company PQR Ltd will keep the record in its books as: Total cost of machinery – Accumulated depreciation on machinery
= $200,000 – $24,000.
= $ 1,76,000
Example 2: An asset A was purchased on 1th Jan 2000 having cost as $ 500,000 and its scrap value is found to be $ 100,000 having a useful life of 10 years. And An asst B was purchased on 1st July 2000 having cost as $ 400,000 and its scrap value is found to be $ 80,000 having a useful life of 20 years. Calculate the accumulated depreciation using the Straight line Method of for Asset A and Diminishing method for Asset B.
Solution:
Given to us the following data as:
For Asset A:
- Cost =$ 500,000
- scrap value =$ 100,000
- useful life = 10 years
For Asset B:
- Cost = $ 400,000
- scrap value = $ 80,000
- useful life = 20 years
So, using the formula as:
Depreciation Expense = (Cost of Asset – Scrap value) / Useful lifetime.
= (500,000 – 100,000) / 10
So,
Depreciation Expense = 400,000 / 10
= 40,000 p/year.
As Accumulated depreciation = sum of all the depreciation
Suppose the financial year of the company ends on June 30th. Therefore, the depreciation cannot be charged for the whole year for the Financial Year 2000-2001
Thus, we need to divide the annual depreciation expense by 12 as well as multiply it with the number of months of its usage. Which, gives us the following information as:
Depreciation Expense = (40,000 * 6) / 12
= 20,000 (depreciation for 6 months)
Accumulated depreciation Schedule Using Straight Line Method:
The following table represents the Straight Line Accumulated Depreciation For asset A:
[ninja_tables id=”2532″]
Accumulated Depreciation Schedule Using Declining Method For Asset B:
[ninja_tables id=”2537″]
Rate of Depreciation = 1 – (Scrap value / cost value)1/n
= 1 (80,000 / 400,000)1/20
= 7.73 when rounded = 8 Percent
Accumulated Depreciation in Excel:
Taking the example above, we will calculate the Accumulated Depreciation in Excel:
Example 1: PQR Ltd purchased a machinery for $ 200,000 three years ago. The machinery depreciates by $ 8,000 a year. Calculate the Accumulated Depreciation for PQR Ltd company’s machinery.
Solution: Accumulated depreciation = $ 8,000 (depreciation For the year 1) + $ 8,000 (depreciation For the year 2) + $ 8,000 (depreciation For the year 3) = $ 24,000.
So, the company PQR Ltd will keep the record in its books as: Total cost of machinery – Accumulated depreciation on machinery
= $200,000 – $24,000.
= $ 1,76,000
| A | B | |
| 1 | Total cost of machinery | $ 200,000 |
| 2 | – Accumulated depreciation on machinery | $ 24,000. |
| 3 | Cost after Accumulated depreciation | =(B1-B2) |
| A | B | |
| 1 | Total cost of machinery | $ 200,000 |
| 2 | – Accumulated depreciation on machinery | $ 24,000. |
| 3 | Cost after Accumulated depreciation | $ 1,76,000 |
Example 2: An asset A was purchased on 1th Jan 2000 having cost as $ 500,000 and its scrap value is found to be $ 100,000 having a useful life of 10 years. And an asset B was purchased on 1st July 2000 having cost as $ 400,000 and its scrap value is found to be $ 80,000 having a useful life of 20 years. Calculate the accumulated depreciation using the Straight Line Method of for Asset A and Diminishing method for Asset B.
Solution:
Given to us the following data as:
For Asset A:
- Cost =$ 500,000
- scrap value =$ 100,000
- useful life = 10 years
For Asset B:
- Cost = $ 400,000
- scrap value = $ 80,000
- useful life = 20 years
So, using the formula as:
Depreciation Expense = (Cost of Asset – Scrap value) / Useful lifetime.
= (500,000 – 100,000) / 10
So,
Depreciation Expense = 400,000 / 10
= 40,000 p/year.
As Accumulated depreciation = Sum of all the depreciation
Suppose the financial year of the company ends on June 30th. Therefore, the depreciation cannot be charged for the whole year for the Financial Year 2000-2001
Thus, we need to divide the annual depreciation expense by 12 as well as multiply it with the number of months of its usage. Which, gives us the following information as:
Depreciation Expense = (40,000 * 6) / 12
= 20,000 (depreciation for 6 months)
Accumulated depreciation Schedule Using Straight Line Method in excel:
The following table represents the Straight Line Accumulated Depreciation in excel For asset A:
| A | B | C | D | E | F | |
| 1 | S.No | Accounting Period | Cost of Asset | Depreciation | Accumulated Depreciation | Current Value |
| 2 | 1 | 2001 | 500,000 | 20,000 | 20,000 | =(C2-E2) |
| 3 | 2 | 2002 | 480,000 | 40,000 | 60,000 | =(C3-E3) |
| 4 | 3 | 2003 | 440,000 | 40,000 | 100,000 | =(C4-E4) |
| 5 | 4 | 2004 | 400,000 | 40,000 | 140,000 | =(C5-E5) |
| 6 | 5 | 2005 | 360,000 | 40,000 | 180,000 | =(C6-E6) |
| 7 | 6 | 2006 | 320,000 | 40,000 | 220,000 | =(C7-E7) |
| 8 | 7 | 2007 | 280,000 | 40,000 | 260,000 | =(C8-E8) |
| 9 | 8 | 2008 | 240,000 | 40,000 | 300,000 | =(C9-E9) |
| 10 | 9 | 2009 | 200,000 | 40,000 | 340,000 | =(C10-E10) |
| 11 | 10 | 2010 | 160,000 | 40,000 | 380,000 | =(C11-E11) |
After applying the formula in excel:
| A | B | C | D | E | F | |
| 1 | S.No | Accounting Period | Cost of Asset | Depreciation | Accumulated Depreciation | Current Value |
| 2 | 1 | 2001 | 500,000 | 20,000 | 20,000 | 480,000 |
| 3 | 2 | 2002 | 480,000 | 40,000 | 60,000 | 440,000 |
| 4 | 3 | 2003 | 440,000 | 40,000 | 100,000 | 400,000 |
| 5 | 4 | 2004 | 400,000 | 40,000 | 140,000 | 360,000 |
| 6 | 5 | 2005 | 360,000 | 40,000 | 180,000 | 320,000 |
| 7 | 6 | 2006 | 320,000 | 40,000 | 220,000 | 280,000 |
| 8 | 7 | 2007 | 280,000 | 40,000 | 260,000 | 240,000 |
| 9 | 8 | 2008 | 240,000 | 40,000 | 300,000 | 200,000 |
| 10 | 9 | 2009 | 200,000 | 40,000 | 340,000 | 160,000 |
| 11 | 10 | 2010 | 160,000 | 40,000 | 380,000 | 120,000 |
Accumulated Depreciation Schedule Using Declining Method For Asset B:
Rate of Depreciation = 1 – (Scrap value / cost value)1/n
= 1 (80,000 / 400,000)1/20
= 7.73 when rounded = 8 Percent
| A | B | C | D | E | F | |
| 1 | Financial Year | Cost Value | Percentage | Depreciation Expense for the period | Accumulated Depreciation Exp | Written Down Value of the Asset= (cost – Dep) |
| 2 | 2001 | 400,000 | 8 | 32,000 | 32,000 | =(B2-D2) |
| 3 | 2002 | 368,000 | 8 | 29,440 | 61,440 | =(B3-D3) |
| 4 | 2003 | 338,560 | 8 | 27,085 | 88,525 | =(B4-D4) |
| 5 | 2004 | 311,475 | 8 | 24,918 | 113,443 | =(B5-D5) |
| 6 | 2005 | 286,557 | 8 | 22,925 | 136,367 | =(B6-D6) |
| 7 | 2006 | 263,633 | 8 | 21,091 | 157,458 | =(B7-D7) |
| 8 | 2007 | 242,542 | 8 | 19,403 | 176,861 | =(B8-D8) |
| 9 | 2008 | 223,139 | 8 | 17,851 | 194,712 | =(B9-D9) |
| 10 | 2009 | 205,288 | 8 | 16,423 | 211,135 | =(B10-D10) |
| 11 | 2010 | 188,865 | 8 | 15,109 | 226,245 | =(B11-D11) |
| 12 | 2011 | 173,755 | 8 | 13,900 | 240,145 | =(B12-D12) |
| 13 | 2012 | 159,855 | 8 | 12,788 | 252,933 | =(B13-D13) |
| 14 | 2013 | 147,067 | 8 | 11,765 | 264,699 | =(B14-D14) |
| 15 | 2014 | 135,301 | 8 | 10,824 | 275,523 | =(B15-D15) |
| 16 | 2015 | 124,477 | 8 | 9,958 | 285,481 | =(B16-D16) |
| 17 | 2016 | 114,519 | 8 | 9,162 | 294,643 | =(B17-D17) |
| 18 | 2017 | 105,357 | 8 | 8,429 | 303,071 | =(B18-D18) |
| 19 | 2018 | 96,929 | 8 | 7,754 | 310,825 | =(B19-D19) |
| 20 | 2019 | 89,175 | 8 | 7,134 | 317,959 | =(B20-D20) |
After applying the formula in excel:
| A | B | C | D | E | F | |
| 1 | Financial Year | Cost Value | Percentage | Depreciation Expense for the period | Accumulated Depreciation Exp | Written Down Value of the Asset= (cost – Dep) |
| 2 | 2001 | 400,000 | 8 | 32,000 | 32,000 | 368,000 |
| 3 | 2002 | 368,000 | 8 | 29,440 | 61,440 | 338,560 |
| 4 | 2003 | 338,560 | 8 | 27,085 | 88,525 | 311,475 |
| 5 | 2004 | 311,475 | 8 | 24,918 | 113,443 | 286,557 |
| 6 | 2005 | 286,557 | 8 | 22,925 | 136,367 | 263,633 |
| 7 | 2006 | 263,633 | 8 | 21,091 | 157,458 | 242,542 |
| 8 | 2007 | 242,542 | 8 | 19,403 | 176,861 | 223,139 |
| 9 | 2008 | 223,139 | 8 | 17,851 | 194,712 | 205,288 |
| 10 | 2009 | 205,288 | 8 | 16,423 | 211,135 | 188,865 |
| 11 | 2010 | 188,865 | 8 | 15,109 | 226,245 | 173,755 |
| 12 | 2011 | 173,755 | 8 | 13,900 | 240,145 | 159,855 |
| 13 | 2012 | 159,855 | 8 | 12,788 | 252,933 | 147,067 |
| 14 | 2013 | 147,067 | 8 | 11,765 | 264,699 | 135,301 |
| 15 | 2014 | 135,301 | 8 | 10,824 | 275,523 | 124,477 |
| 16 | 2015 | 124,477 | 8 | 9,958 | 285,481 | 114,519 |
| 17 | 2016 | 114,519 | 8 | 9,162 | 294,643 | 105,357 |
| 18 | 2017 | 105,357 | 8 | 8,429 | 303,071 | 96,929 |
| 19 | 2018 | 96,929 | 8 | 7,754 | 310,825 | 89,175 |
| 20 | 2019 | 89,175 | 8 | 7,134 | 317,959 | 82,041 |
Is accumulated depreciation a current asset?
No, the Accumulated depreciation is not included or categorized as a current asset, as it has a credit balance representing the past value of the asset.
Accumulated depreciation journal entry:
In the journal entry of accumulated depreciation, the record of accumulated depreciation is kept by debiting the Depreciation Expense account and the Accumulated Depreciation account is credited.
So, it is represented in the journal as in the books:
| Particulars | Amount (Debit) | Amount (Credit) |
| Depreciation Expense account | XXX | |
| Accumulated Depreciation account | XXX |
Accumulated depreciation debit or credit?
The accumulated depreciation is a credit account balance, which reduces the value of the fixed assets in the balance sheet.
Is accumulated depreciation an asset?
accumulated depreciation Account is included among the asset account and thus, has a credit balance. So, yes, we can say that accumulated depreciation is an asset as accumulated depreciation appears on the credit side. Moreover, it is also reduced from the gross assets in the balance sheet of the company or the firm.
Accumulated depreciation in cash flow:
Though, the accumulated depreciation is shown up in the balance sheet only. But in the Income statement or the cashflow, it comes under the heading the net income depicting the expense, as well as it is also added back to the income. So, the accumulated depreciation does not affect the Income statement or the cash flow of the company.
Difference between depreciation and accumulated depreciation:
The total amount by which an asset depreciated is termed up as accumulated depreciation, whereas the amount of expense of depreciation included for a single period is termed up as depreciation.
Is Depreciation An Asset Or Liability?
Is Depreciation Expense an Asset or Liability? Depreciation expense is recorded on the income statement as an expense and represents how much of an asset’s value has been used up for that year. As a result, it is neither an asset nor a liability.
How Do We Calculate Accumulated Depreciation?
While the depreciation expense is the amount recognized each period, the accumulated depreciation is the sum of all depreciation to date since purchase. Because the accumulated depreciation account is an asset that carries a credit balance, it is considered a contra asset.
Conclusion:
The accumulated depreciation calculates the total depreciation expense incurred by a single asset. It is treated as an expense and holds a separate account with a credit balance.
FAQ
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