How is depreciation on laser equipment calculated?

Want to quickly grasp the calculation method for depreciation of laser equipment? This article provides a template for calculating depreciation that can be directly applied. It explains in detail the useful life of laser equipment, the rate of residual value, and practical calculation methods such as the straight-line method and the sum-of-years'-digits method, so as to make it easier for business owners and financial staff to manage equipment assets.

Why should we care about the depreciation of laser equipment?

Laser equipment is a large capital investment, costing hundreds of thousands or even millions of dollars, and if a company does not know how to calculate depreciation, not only will it affect cost accounting, it might also end up paying more taxes than it should.To put it simply, depreciation is the process by which the value of a piece of equipment is spread out over a number of years and included as part of the cost of production. Only if it is calculated correctly can it truly reflect the situation of the enterprise.

The basic concept of depreciation of laser equipment.

What is depreciation of equipment?

Simply put, just as a cell phone loses value as it ages, laser equipment loses value the longer it is used.The amount of this loss must be allocated to production costs or administrative costs.

How long should depreciation be?

According to the tax law, the depreciation period for laser equipment is generally 10 years, but if the equipment is used intensively (such as for a 24-hour production line), the depreciation period can be appropriately shortened to five to eight years.The key is to keep a record of the maintenance, so that adjustments can be made.

What is the meaning of the residual value rate?

The residual value is the amount of money the equipment can be sold for as scrap after it is no longer usable. It is usually estimated at 5 % of the original value.For example, if the equipment is worth NT $ 1 million, and the residual value is calculated at NT $ 50,000, the remaining NT $ 950,000 is used for depreciation.

These are two of the most commonly used methods of depreciation calculation.

The straight-line method (depreciation by average life).

This is something that even a little white dog can understand: annual depreciation = (original value - residual value) / useful life.For example, if a NT $ 1 million laser machine is depreciated over 10 years at a residual value of NT $ 50,000, then the annual depreciation is (1,000,000 - 50,000) ÷ 10 = NT $ 95,000.

Sum-of-the-years-digits depreciation.

For industries in which technology changes rapidly, depreciation can be accelerated for several years.The formula is a little complicated: Annual depreciation rate = remaining years of depreciation / total number of years of depreciation.For example, if the depreciation period is five years, the rate for the first year is 5 / (5 + 4 + 3 + 2 + 1), or 33.3 percent, and the rate for the second year becomes 26.7 percent, and so on.

The depreciation calculation template.

We have prepared an Excel spreadsheet with formulas (downloadable at the end of this article). You need only fill in three items:

1. The price paid for the machinery.

2. The estimated useful life of the asset.

3. The salvage value of the asset is 5 % of its original cost.

The spreadsheet automatically generates the annual depreciation, cumulative depreciation, and residual value, and even draws the depreciation curve. You can print it out and put it on the wall.

Some practical tips.

• When equipment is repaired or overhauled, remember to recalculate depreciation using the residual value.

• Depreciation can be calculated for equipment purchased in the same batch, eliminating the need to register each item individually.

• At the end of each year, the actual rate of depreciation is compared with the residual value on the books, and if the difference exceeds 20 %, the depreciation plan is adjusted.

[Click here to download the table as a PDF.

Click here to download the "Laser Equipment Depreciation Calculator" spreadsheet.