To remain compliant with the generally accepted accounting principles, a company must depreciate all of their assets, including laptops. There are three primary depreciation methods a company can use to depreciate their assets: straight-line method, declining depreciation and sum of years' digits. The depreciation method the company uses is completely up to the company. Both declining depreciation and sum of years' digits will take more depreciation on an asset earlier in the asset's life, while straight line depreciation is a constant depreciation rate.

- Skill level:
- Easy

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## Instructions

- 1
Determine the cost, useful life and salvage value of the laptop. The cost is the amount the company spends on the laptop. The useful life is an estimate of how long the company thinks the laptop will last. The residual value is how much the company can sell the laptop for at the end of its useful life. For example, a company buys an £520 laptop it plans to use for three years. They estimate they can sell the asset for £65 at the end of the three years.

- 2
Subtract the residual value from the cost of the asset to calculate the base for the depreciation. In the example, £520 minus £65 equals £455.

- 3
Divide the depreciation base by the laptop's useful life to calculate depreciation. In the example, £455 divided by three years equals £151.6 a year of depreciation.

- 1
Determine the cost, useful life and speed of declining. The cost is the amount the company spends on the laptop. The useful life is an estimate of how long the company thinks the laptop will last. The speed of declining is usually double, but can be any number. For example, a company buys a £520 laptop it plans to use for three years. They want to use double declining depreciation.

- 2
Divide the declining rate by the asset's useful life. In the example, 2 divided by 3 years equals 0.6667. This is the depreciation rate.

- 3
Multiply the depreciation rate by the asset's current value. In the example, £455 times 0.6667 equals £303.3. This is the depreciation for the first year.

- 4
Subtract the year's depreciation from the prior year's current value of the asset to calculate the asset's new current value. In the example, £455 minus £303.3 equals £151.6. Use this value when calculating the next year's depreciation.

- 5
Repeat Steps 3 and 4 each year of the asset's life.

- 1
Determine the cost, useful life and salvage value of the laptop. The cost is the amount the company spends on the laptop. The useful life is an estimate of how long the company thinks the laptop will last. The residual value is how much the company can sell the laptop for at the end of its useful life. For example, a company buys a £520 laptop it plans to use for three years. They estimate they can sell the asset for £65 at the end of the three years.

- 2
Add together each digit for the years of useful life. In the example, there are three years, so 1 plus 2 plus 3 equals 6.

- 3
Subtract the residual value from the cost of the asset to calculate the base for the depreciation. In the example, £520 minus £65 equals £455.

- 4
Divide the reciprocal year as the current year by the number calculated in Step 2. Do this for each year of the asset's life. In the example, divide 3 by 6 for year 1, then 2 by 6 for year 2 and 1 by 6 for year 3. This is the depreciation rate. So for year 1 the depreciation rate is 0.5, for year 2 the depreciation rate is 0.33 and for year 3 the depreciation rate is 0.17.

- 5
Multiply the depreciation base by the depreciation rate for each year to calculate the year's depreciation. In the example, £455 times 0.5 equals £227 for year 1, £455 times 0.33 equals £150 for year 2 and £455 times 0.17 equals £77 for year 3.