Depreciation Method

To calculate depreciation, certain prescribed approaches, called depreciation methods, must be used. The straight-line method results in deducting equal or ratable amounts of an asset’s cost over the asset’s useful life or depreciation (recovery) period. For example, a machine costing $1,000 for which a depreciation period is ten years would be depreciated at a rate of $100 each year. The rate of depreciation using the straight-line method is 10 percent ($100 annual depreciation divided by the $1,000 asset cost). The 200 percent (or double) declining balance method of calculating depreciation uses a rate twice the straight- line rate, or 20 percent in our example. The 150 percent declining- balance method uses a rate that is one and one-half times as fast as the straight-line method, or 15 percent in our example.