Long Lived Assets: Depreciation, Amortization, and Revaluation Model

​Straight line Depreciation equals (The cost “usually the purchase price” – Residual Value)/ Estimated Useful life.  Accelerated Depreciation has a higher depreciation expense in earlier years. An example is double declining which takes the initial straight line percentage and doubles it (i.e. if straight-line is 20%, accelerated depreciates at 40%). Units of production allocate costs to the corresponding actual use of an asset for the particular period. The allocation is applied to the accumulated depreciation amount every consequent year, until the end of the useful life. Units of Production are used for property with non-continual use and when property’s values are related to numbers of years used. Essentially, the allocation of depreciation is expensed during times of greater use.
 
Historical cost model (allowed by all IFRS and GAAP) uses the original cost when acquired by the company minus accumulated depreciation. Revaluation model (only allowed by IFRS) uses the carrying amounts at fair values at the date of the revaluation minus subsequent accumulated depreciation or amortization (may lead to amounts greater than historical costs). If revaluation increases the carrying amount, equity increases under “revaluation surplus”. Any subsequent decrease lessens the “revaluation surplus” and goes to the income statement. If increases occur after decreases in carrying amounts, value goes back to the original carrying amount into the income statement.