Impairment Loss Formula

Impairment Loss Formula

Impairment loss is calculated by the following formula

Impairment Loss = Carrying Amount – Recoverable Amount

Example

Cost = 120,000

Accumulated Depreciation = 40,000

Recoverable Amount = 70,000

What is Impairment Loss?

Solution

Carrying amount = 120,000- 40,000

= 80,000 (Carrying amount)

Impairment Loss = Carrying Amount – Recoverable Amount

= 80,000-70,000

= 10,000 (impairment Loss)

Revaluation Surplus Formula

Revaluation Surplus Formula

Revaluation Surplus can be calculated by the following simple formula.

Revaluation Surplus = Revalued Amount – Net book Value

Example

Plant Cost = 100,000

Net book value = 80,000

Revalued amount= 120,000

What would be revaluation Surplus?

Solution

Revaluation Surplus = Revalued amount- net book value

=120,000-80,000

= 40,000 (revalued amount)

Sum of Digit Depreciation Formula

Sum of Digit Depreciation Formula

Sum of digit can be calculated by the following formula. Sum of digit used to calculate proportionate depreciation for each year.

Sum of Digit =n (n+1)/2

Example

Year = 6

100,000

Calculate Depreciation

Solution

Sum of Digit =n (n+1)/2

=6 (6+1)/2

=6 (7)/2

=42/2

=21

Depreciation

First year Depreciation = 6/21 x 100,000

2^nd year Depreciation =   5/21 x 100,000

3^rd year depreciation =    4/21x 100,000

4^th year Depreciation =    3/21x 100,000

5^th Year Depreciation=     2/21 x 100,000

6^th Year Depreciation =   1/21 x 100,000

Machine Hour Rate Depreciation Formula

Machine Hour Rate Depreciation Formula

In this method the useful life of the machine is divided by the total expected number of hour from machine.

Depreciation Rate = useful life/machine hours

Example

Cost            = 100,000

Residual value = 10,000

Machine hours = 8000

Depreciation Rate=

Solution

Depreciable amount = 100,000-10,000

=90,000

Depreciation Rate = 90,000/8000

= 11.25

Carrying Amount Formula

Carrying Amount Formula

Carrying amount of an asset can be calculated by deducting accumulated depreciation from the cost.

Carrying Amount = Cost –Accumulated Depreciation

Example

Plant machinery = 100,000

Depreciation = 10,000

What would be carrying amount after two years?

Solution

Plant Cost                                            100,000

Accumulated Depreciation                       (20,000)

Carrying Amount                                    80,000

Straight Line Depreciation Formula

Straight Line Depreciation Formula

Straight-line method depreciation is calculated by dividing depreciable amount with useful life.

Straight Line Depreciation = Depreciable Amount

                                                Useful life

Example

Cost =20,000

Residual value = 5000

Useful life= 3 Years

What would be Straight line Depreciation?

Solution

Depreciable Amount = cost – Residual Value

= 20,000-5,000

=15,000

Straight Line Depreciation = Depreciable Amount

                                                   Useful life

= 15,000/3

=5,000 (Straight Line Depreciation)

Straight line depreciation is regarded as simplest depreciation method.

Depreciable Amount Formula

Depreciable Amount Formula

Depreciable amount can be calculated by the following formula. Depreciation for the year is calculated on the bases of depreciable amount.

Depreciable Amount = Cost of Asset – Residual Value

Example

Cost = 120,000

Residual Value = 40,000

Calculate Depreciable Amount

Solution

Depreciable Amount = Cost of Asset – Residual Value

=120,000-40,000

=80,000. (Depreciable Amount)

Depreciable amount is play important role for calculating the depreciation