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Aca 1 Task 5

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Submitted By crystalglow81
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Memo
To: Fan Company A
From: Crystal Franklin
Date: 05/172014
Re: Recommended Depreciation Method

The straight line method of depreciation one of the easiest ways to calculate depreciation expense. The effects on net income is the same over the life of the item that is being depreciated, due to the expense having the same cost every year. To calculate straight line depreciation you take the cost minus the salvage value, than divide the number by the expected life.
Double declining balance method of depreciation, uses double the straight line method. Double declining balance is calculated by, first finding the straight line depreciation amount than find the straight line percentage. To find the straight line percentage divide the yearly straight depreciation into the item’s cost minus the salvage value. Once you have the straight line percentage multiply it by two giving the double declining rate. The double declining rate is than multiplied by the cost minus any accumulated depreciation. Double declining balance method deducts larger amount during the early years of the item, this lowers net income early of the item.
In the instances of corporations whose costs are based solely on production costs, the units-of-production is the best method. That way if production is low, than the depreciation expense is low, lowering the effect on net income. When the companies production is high, than there is a larger deduction to the net income. The units-of-output method is calculated by taking the cost minus the salvage value and multiplying by the number of hours the item is used during the period. Than that value is then divided by the total hours the item is expected to perform in its lifetime. This could also be calculated by using the number of units produced, and the expected units the item is to produce.
Sum-of-the-year’s-digits method of depreciation is

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