Depreciation is the systematic allocation of the depreciable amount of an asset over its useful
life.
Depreciation depends on how you will use the object or property. It depends on what kind of
depreciation happened.
Kinds of Depreciation
1. Physical (nakikita)
-
Wear and Tear (palaging ginagamit)
Passage of time (naluluma)
Action of elements (elements pertaining to science such as sulfur sa bubong,
nangalawang)
Casualty or accident (nasunog)
Disease or decay (kahoy na inanay)
2. Functional / Economic (maaaring nakahanap na ng mas maganda)
-
Inadequacy (kakulangan, kulang ang kakayahang i-meet ang level of output)
Supersession (may mas maganda, ex. typewriter pinalitan ng computer)
Obsolescence (no demand sa asset, ex. Morse code)
Inadequacy and supersession is under obsolescence (obsolete)
Depreciation is under the concept of Matching principle, rational and systematic allocation.
Factors of Depreciation (all of these are estimated)
1. Depreciable Amount – cost of an asset or the amount substituted for cost less the residual
value. (Utility value)
2. Residual Value – the estimated amount currently obtainable if the asset is at the end of its
useful life. (salvage value or scrap value, value of the asset other than its main purpose)
3. Useful life – is either the period over which an asset is expected to be available for use by the
entity, or the number of production or similar units expected to be obtained from the asset by the
entity.
Legal life – the usefulness of the object or property is based on legal or implementation from the
government.
Service life vs. Physical life
Service life – is the period of time an asset shall be used by an entity. (expectation kung gaano
mo katagal magagamit, more important than physical life)
Physical life – refers to how long the asset shall last. (totoong buhay ng asset)
Depreciation Period
-
Start when it is available for use
End when asset is derecognized
If the asset is suddenly held for sale, stop depreciation
If the asset is temporary idle, continue depreciation
-
If the accumulated depreciation exceeds the depreciable amount
Presentation – generally a expense account. (noncash expense)
Depreciation  Period Cost (Expense) (related sa selling at admin, at specific period ay
expense)
 Product Cost (Capitalized) (related sa production or manufacturing, nagiging
part ng product cost which will be part of overhead, COGS)
Depreciation Methods
“Shall reflect the pattern in which the future economic benefits from the asset are expected to be
consumed by the entity.”
1. Equal or Uniform Charge Methods
a) Straight Line
b) Composite
c) Group