Methods of Charging Depreciation to Departments
Methods of Charging Depreciation (Equipment):
Depreciation is usually a cost not controllable by departmental foremen. However, their use of equipment influences maintenance and depreciation costs. This is true with respect to all types of depreciable assets — machinery and equipment, buildings, vehicles, furniture and fixtures, etc.
Some firms show depreciation as a non-controllable cost on departmental cost statements. For effective costing and controlling, depreciation is usually identified with the departments using the assets; and the cost is charged directly to departments. The recommended method is to compute depreciation by departments based on the cost of equipment in the departments as recorded on detailed fixed asset records.
When no records are available or equipment is not specifically used by only one department, depreciation is frequently charged to general plant expense. Other methods of charging depreciation will be discussed shortly such as-
Straight Line Method
Declining Balance Method
Sum-of-Years-Digits (SYD) Method
ACRS (Accelerated Cost Recovery System)