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Depreciation Methods

Depreciation is generally computed using one of the following methods:

  1. Straight-line
  2. Units-of-activity
  3. Declining-balance

Each method is acceptable under generally accepted accounting principles. Management selects the method(s) it believes to be appropriate. The objective is to select the method that the best measures an asset’s contribution to revenue over its useful life. Once a company chooses a method, it should apply consistently over the useful life of the asset. Consistency enhances the comparability of financial statements. Depreciation affects the balance sheet through accumulated depreciation and the income statement through depreciation expense.

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