## Example of Deprecation Expense and Forecasting

Deprecation Rate and Expense on Fixed Assets note to the financial statements

This note can be setup in many ways.  The objective is to fully explain your method used to depreciate fixed assets (straight line, for example), the useful life of each fixed asset, and the depreciation expense for each forecasted business year. Below provides an example.

Depreciation Rate and Expenses:
The BBB Company is using a straight line method of depreciation which attributes equal reduction in asset values each year. Below depicts how we calculated the depreciation expense for each year. Please note, deprecation expense for 200X will be half of one full year, since our planned opening is July 1 (half the year).

 Market Value Useful Life Deprecation Expense/Year Dep. Exp. 6 months Automobile \$6,000 3 yrs \$2,000 \$1,000 Office Equipment (net) \$8,400 3 yrs \$2,800 \$1,400

 200X 200Y Depreciation Expense - Auto \$1,000 \$2,000 Depreciation Expense - Office Equipment \$1,400 \$3,200

The 200Y depreciation expense amount on the office equipment (\$3,200) includes the depreciation expense for 200X plus the depreciation expense on a computer that will be purchased during 200Y for \$1,200. We assumed the useful live of the computer purchased in 200Y is three years, thus depreciating at a rate of \$400 per year. (\$2,800 + \$400 = \$3,200 in deprecation expense for 200Y).

Categories: Financial