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Monthly Calculation

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Depreciation signifies wastage or loss of the usage capacity (useful life) of tangible or physical assets by usage, natural causes or by technological obsolescence.

Generally, depreciation is made by usage, because a Technical Report from competent authorities is required for obsolescence or nature's action.

It is calculated by applying the depreciation rate, fixed based on the estimated useful life of the item, on the value of the assets subject to depreciation.

Depreciation generates an expense (administrative area) or cost (production area). It starts being calculated only from the moment it was started to be used.

Some assets do not lose value, such as: land, works of art, etc. These assets are not depreciated.

Types of calculation available:

50 – Linear Method

51 - Sum of Digits

52 - Balance reduction

53 - Sum of years

54 - Units produced

This method allows accelerated depreciation of asset, applying a variable rate always on the original acquisition value.

Calculation Characteristics

Sum of Digits

•	The rate is variable and always applied on the asset original value.

•	The formula to calculate the rate is:

Depreciation rate = (n-PC+1)/SD

Where:

n = period in months (if it is monthly, in years or annual depreciation)

PC= calculation period (1 for the first depreciation, 2 for the second, n for the previous)

SD= sum of digits = 99e08706-521e-41f8-84b2-84418fd8092c = 1+2+...+n

Balances Reduction

•	It is mandatory to have the salvage value (field Salvage Value filled out).

•	The rate is fixed and applied to the residual value instead of to the asset original value.

•	If the method is kept until the end of useful life, residual value will be equal to salvage value

•	The formula to calculate the rate is:

Depreciation rate = 1- (VS/VO)1/n

Where:

VS = salvage value

VO = original value

n = period in months (if it is monthly, in years or annual depreciation)