Accumulated depreciation is the total expenditure of depreciation charges on a piece of equipment since you bought it. Depreciation is the allocation of the cost of the piece of equipment on the number of years you expect to be in service. When you load a depreciation expense to a piece of equipment each year, the amount of expenditure amounts to accumulated depreciation. You can calculate the accumulated depreciation of a piece using the straight – line method, which depreciates in an amount equivalent each year.
- Determines the cost of a piece of equipment. For example, it assumes that the cost of a machine was US $ 45,000.
- Determines the life useful piece of equipment, which is the number of years you expect to use, and its residual value, which is the expected value at the end of its useful life. In this example, it assumes that the machine will have a lifespan of 10 years and a residual value of US $ 5,000 at the end of these 10 years.
- Subtract the residual value of the piece of equipment cost. Then divide your result by life to calculate your annual depreciation expense. In this example, subtraction US $ 5,000 to US $ 45,000 for US $ 40,000. After US $ 40,000 divided by 10 to obtain an annual depreciation expense of US $ 4,000.
- Determines a year of the life of the piece of equipment at the end of which you want to determine the accumulated depreciation. In this example, assume you want to find the accumulated depreciation of the machine at the end of the fourth year of its life.
- Multiply the year by the annual depreciation expense to calculate the expense of accumulated depreciation of equipment at the end of that year. In this example, multiply 4 US $ 4,000 US $ 16,000 for accumulated at the end of the fourth year of the life of the machine depreciation.