9.9 Select Depreciation Method
Depreciation is the systematic allocation of the depreciable amount of the asset over its useful life. Methods of depreciation are summarised below in terms of their consumption of future economic benefits, but are also presented in Table 8.10 and discussed in Section 8.13:
- constant consumption over the useful life of the asset – straight line method
- greater consumption in the early years and less in the later years – diminishing balance method
- increased consumption as the asset approaches the end of its useful life – output/service basis method
- consumption varies with outputs/service – units of production method.
The patterns of consumption of future economic benefits are shown in IPWEA (2015b). Asset owners must select the method of depreciation that most closely represents the expected pattern of consumption of the future economic benefits embodied in the asset.