SF Depreciation in a Short Year
The formula for calculating SF depreciation in a short year is:
|
Yearly Depr. in a 12-month Year |
X |
Months Asset is in Service
|
= |
Depr. in a Short Year |
The first step in calculating depreciation for depreciation method SF is to calculate the adjusted basis. The formula for calculating the adjusted basis is:
|
Original Cost - Salvage Value |
= |
Adjusted Basis |
The formula for calculating straight-line depreciation is:
|
Adjusted Basis
|
= |
Annual Depreciation |
Here is an example:
A company begins operations in April 2021 and has a December year-end.
|
Original Cost: |
$14,000 |
|
Salvage Value: |
$2,000 |
|
Placed-in-service Date: |
07/16/2021 |
|
Estimated Life: |
5 Years |
First, calculate the adjusted basis:
|
$14,000 - $2,000 |
= |
$12,000 |
Next, calculate the annual depreciation:
|
$12,000
|
= |
$2,400 |
Year 1:
|
$2,400 |
X |
6 * |
= |
$1,200 |
* The SF depreciation method uses the full month averaging convention. The asset is treated as though it were placed in service on July 1. It receives a full month of depreciation in July and 6 months of depreciation in the first year.
Years 2 through 5:
In years 2 through 5, the asset receives the yearly depreciation of $2,400 (as calculated above).
Year 6:
|
$2,400 |
X |
6
|
= |
$1,200 |
In the final year, the asset receives 6 months of depreciation.