REDUCING BALANCE METHODâ¢ The amount of depreciation per year diminishes with every successive year.Example:- If an asset is depreciated by \$2,000 in the first full year of usage, it will be depreciated by less than \$2,000 (eg \$1,600) in the second year; and even less (eg â¦ Annuity Method 4. Specifically, it is an accounting concept that sets an annual deduction considering the factor of time and use on an asset's value. 1. Fixed Installment 2. Depreciation Expense: (Remaining life / Sum of the year) *(beginning book value â residual value) Example: Company XYZ purchases a machinery for Rs 10,000 with useful life of 8 years and residual value of machinery is Rs 1,000. Different methods of asset depreciation are used to more accurately reflect the depreciation and current value of an asset. Depreciation Fund Method 5. What Is Depreciation? There are three methods for depreciation: straight line, declining balance, sum-of-the-years' digits, and units of production. Depletion Method 8. In this depreciation method, the depreciation can keep going for much further than 8 years if we keep the table going with the formula. However, the depreciation usually stops when the net book value is less than or equal to residual. Useful to assets whose service remain uniform throughout the year. The methods are: 1. Sum-of-the-Years-Digits Depreciation Method: It is one of the most accelerated depreciation methods. Popular depreciation methods include straight-line method, declining balance method, units of production method, sum of year digits method. Revaluation Method 7. There is also another method of accounting for depreciation, although it is rarely used. How the Different Methods of Depreciation Work . Methods of Depreciation 1) STRAIGHT LINE METHOD Amount of depreciation is fixed. Insurance Policy Method 6. The double-declining balance method is a form of accelerated depreciation. 3) ANNUITY METHOD Depreciation is calculated from annuity table. 8. Assessment of Depreciation 9. For tax, MACRS is the relevant depreciation method. Fixed Installment: This is the [â¦] Depreciation A/c Dr 10,000 To Computer A/c 10,000. Depreciation is the method of allocating costs to the appropriate period. Depreciation isnât part of the whole equation for figuring the fair market value, which is the amount of money the company may [â¦] For eg: Furniture & fixtures 2) WRITTEN DOWN VALUE METHOD Rate of depreciation is fixed. Although accountants have to follow generally accepted accounting principles (GAAP) for financial statement reporting purposes, they have different allowable methods to consider. Method # 1. Diminishing Balance Method 3. Thus depreciation is shown as an Indirect expense in the debit side of profit and loss account and assetâs value is to be shown after the reduction of depreciation in the balance sheet. Depreciation means the decrease in the value of physical properties or assets with the passage of time and use. 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