12 April 2008
All fixed assets depreciate (tend to decrease in value with use) over a period of time. There are several types of depreciation, but mainly four types of depreciation are used to calculate the depreciation of a fixed asset. They are the straight-line method of depreciation, the declining balance method of depreciation, the activity depreciation method, the sum of years’ digits depreciation, the units of production depreciation and the units of time depreciation. In the straight-line method of depreciation, the company estimates the salvage value of the asset after the lapse of time of the depreciation period.
The declining balance method is a type of accelerated method. It recognises a higher depreciation cost at an earlier stage in the lifetime of the asset. Activity depreciation does not take into account the time, but depreciation under this method is calculated on the basis of a level of activity. The sum of years’ digits method is a historical method of calculates depreciation. The units of production depreciation and the units of time depreciation methods take into account the production and time taken for depreciation of assets in mining operations respectively.
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