Depreciation for Computers

Updated on January 3, 2024
Article byVishal Garg
Edited byAnkush Jain
Reviewed byDheeraj Vaidya, CFA, FRM

Depreciation for Computers Definition

Depreciation for Computers means an amount which is written-off from the cost of computers each year equally or calculated on written down the value by a business enterprise over the useful life of computers to change them as. When they become less useful over some time, in other words, it refers to reducing or providing an amount to decrease the value of computers and to report profits accurately.

How to Calculate?

The depreciation for computers can be calculated using the Straight Line MethodStraight Line MethodStraight Line Depreciation Method is one of the most popular methods of depreciation where the asset uniformly depreciates over its useful life and the cost of the asset is evenly spread over its useful and functional life. read more and WDV Method of DepreciationWDV Method Of DepreciationThe Written Down Value method is a depreciation technique that applies a constant rate of depreciation to the net book value of assets each year, resulting in more depreciation expenses recognized in the early years of the asset's life and less depreciation recognized in the later years of the asset's life.read more.

The difference between the methods mentioned above is that in the straight-line method, the fixed amount is calculated equally to be written off every year until the value reaches zero.

In the written down value method, a different amount based on the amount calculated based on written down value or the opening value of an asset for the year for which depreciation is to be calculated is charged as depreciationDepreciationDepreciation is a systematic allocation method used to account for the costs of any physical or tangible asset throughout its useful life. Its value indicates how much of an asset’s worth has been utilized. Depreciation enables companies to generate revenue from their assets while only charging a fraction of the cost of the asset in use each year. read more. The amount charged in the initial years is high in the written-down value method. It can be derived by using the following steps:

Step 1: Calculate the total value of computers on which depreciation is to be calculated.

Step 2: Determine the rate of depreciationRate Of DepreciationThe depreciation rate is the percent rate at which an asset depreciates during its estimated useful life. It can also be defined as the percentage of a company's long-term investment in an asset that the firm claims as a tax-deductible expense throughout the asset's useful life.read more at which the depreciation is to be charged or provision for depreciation is to be made.

Step 3: Finally, take the product of the total cost of computers purchased with the depreciation rate for the period of use during the year. Mathematically, it is represented as:

Depreciation = Written Down Value * Rate of Depreciation * Number of Days or Months/365 or 12 Months.

Depreciation for Computers

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Examples of Depreciation for Computers

Let’s discuss the following examples.

You can download this Depreciation for Computers Excel Template here – Depreciation for Computers Excel Template

Example #1

ABC inc. purchased computers for $1,000,000 on 01.04.2019. The project has a life of 5 years. At the end of the project, the purchased computers could be sold for $100,000. The depreciation rate per governing law is 40% p.a. We have to calculate the value of depreciation to be charged as of 31.03.2020.

Solution:

Now, the amount of depreciation as per written down value method as on 31.03.2020 is as follows:

Depreciation for Computers Example 1.0
  • Depreciation = $(1,000,000 * 40% * 1 year) = $400,000
  • The amount of depreciation to be charged as on 31.03.2020 is $400,000.

Amount of depreciation as per the straight-line method as on 31.03.2020 is as follows:

Example 1.1
  • Depreciation = $(1,000,000 – 100,000) / 5 = $180,000
  • The amount of depreciation to be charged as on 31.03.2020 is $180,000.

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Example #2

PQR INC. had computers that had written down value (WDV) as of 01.04.2019 is $1,500,000. The remaining project life is four years. After the project life ends, the computers could be sold for $500,000. The depreciation rate per governing law is 30% p.a. We have to calculate the value of depreciation to be charged using the written down value method as on 31.03.2020, 31.03.2021, and 31.03.2022.

Solution:

Now, the amount of depreciation as per Written down Value method as on 31.03.2020 is as follows:

Depreciation for Computers Example 2
  • Depreciation = $(1,500,000 * 30%* 1 year) = $450,000
  • The amount of depreciation to be charged as on 31.03.2020 is $450,000.
  • Written down value as on 31.03.2020 = $(1,500,000 – 450,000) = $1,050,000

The amount of depreciation as per the Written down Value method as of 31.03.2021 is as follows:

Example 2.2
  • Depreciation $(1,050,000 * 30% * 1 year) = $315,000
  • The amount of depreciation to be charged as on 31.03.2021 is $315,000.
  • Written down value as on 31.03.2021 = $(1,050,000 – 315,000) = $735,000

Amount of depreciation as per Written down Value method as on 31.03.2022 is as follows:

Depreciation for Computers Example 2.3
  • Depreciation = $(735,000 * 30% * 1 year) = $220,500
  • The amount of depreciation to be charged as on 31.03.2022 is $220,500.
  • Written down value as on 31.03.2021 = $(735,000 – 220,500) = $514,500

Rate of Depreciation for Computers

In India, as per the provisions of Income TaxProvisions Of Income TaxProvision for Income Tax is the estimated income tax for current year and is the amount that the entity might have to deposit to settle their tax liabilities. It is adjusted for the expenses allowed to be deducted according the relevant tax laws.read more Act, 1961, the rate of computer depreciation for computers was 60% p.a. which was later revised to 40% p.a.

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