# How to Calculate Depreciation of Furniture

How to Calculate Depreciation of Furniture

When it comes to managing the financial aspects of your business, it is important to understand how to calculate depreciation of assets. Furniture, being one of the major assets for many businesses, requires careful consideration when determining its depreciation value. In this article, we will explore the various methods of calculating furniture depreciation and provide answers to some frequently asked questions.

Methods of Calculating Furniture Depreciation

There are several methods that can be used to calculate the depreciation of furniture. The most common methods include the straight-line method, the declining balance method, and the sum-of-years-digits method. Let’s take a closer look at each method:

1. Straight-Line Method:
The straight-line method is the simplest and most commonly used method for calculating depreciation. It involves dividing the cost of the furniture by its useful life. The formula for this method is as follows:

Depreciation Expense = (Cost of Furniture – Salvage Value) / Useful Life

For example, if the cost of the furniture is \$10,000, the salvage value is \$2,000, and the useful life is 5 years, the annual depreciation expense would be (\$10,000 – \$2,000) / 5 = \$1,600.

2. Declining Balance Method:
The declining balance method is an accelerated method of calculating depreciation. It assumes that the asset will lose more value in the early years of its useful life. The formula for this method is as follows:

Depreciation Expense = (Cost of Furniture – Accumulated Depreciation) x Depreciation Rate

The depreciation rate is typically a percentage based on the useful life of the furniture. For example, if the cost of the furniture is \$10,000, the accumulated depreciation is \$2,000, and the depreciation rate is 20%, the annual depreciation expense would be (\$10,000 – \$2,000) x 20% = \$1,600.

3. Sum-of-Years-Digits Method:
The sum-of-years-digits method is another accelerated method of calculating depreciation. It allocates more depreciation in the early years and less in the later years. The formula for this method is as follows:

Depreciation Expense = (Cost of Furniture – Accumulated Depreciation) x (Remaining Useful Life / Sum of Years)

The sum of years is calculated by adding the digits of the useful life. For example, if the useful life is 5 years, the sum of years would be 1 + 2 + 3 + 4 + 5 = 15. If the cost of the furniture is \$10,000, the accumulated depreciation is \$2,000, and the remaining useful life is 3 years, the annual depreciation expense would be (\$10,000 – \$2,000) x (3 / 15) = \$1,200.

FAQs

Q: What is the salvage value?
A: The salvage value is the estimated residual value of the furniture at the end of its useful life. It is subtracted from the cost of the furniture to determine the depreciable value.

Q: Can I choose any method of depreciation for my furniture?
A: Yes, you can choose the most appropriate method of depreciation based on your business needs and accounting practices. However, it is important to be consistent with your chosen method.

Q: What is the useful life of furniture?
A: The useful life of furniture can vary depending on factors such as quality, maintenance, and usage. It is typically determined by industry standards or estimated based on past experience.

Q: Can I change the depreciation method after initially choosing one?
A: In general, changing the depreciation method is not recommended as it can affect the accuracy of financial statements. However, if there is a valid reason for the change, it should be properly documented and disclosed.