How to Determine Depreciation for Water Well Drilling Rigs

Depreciation of a water well Drilling Rig can confirm the value of a used transaction, and the following are converted into factors affecting the depreciation of a water well drilling rig

Original cost of the rig:

Includes acquisition cost, transportation costs, installation costs, etc.
Estimated useful life:

Estimate the number of years the rig will be able to provide service based on its type, quality, frequency of use, etc.
Estimated residual value:

Estimated residual value of the rig at the end of its useful life, i.e. the value that can be recovered when it is sold or scrapped.
Depreciation Methods:

Companies can use different depreciation methods such as straight-line method and accelerated depreciation method.

Commonly used depreciation methods

Straight-line method:
The cost of the asset is subtracted from the estimated salvage value and divided by the estimated useful life to obtain the depreciation amount to be charged each year.
Characteristics:

depreciation amount is the same every year, simple calculation.

Accelerated depreciation method:
More depreciation at the beginning of the asset's useful life and less depreciation at the end.
Commonly used accelerated depreciation method:
Double Declining Balance Method: The annual depreciation amount is 2 times the net value at the end of the previous year multiplied by the depreciation rate.
Sum-of-the-years method: annual depreciation is (estimated useful life - number of years used + 1) / (estimated useful life × (estimated useful life + 1)) × (cost - salvage value).
Characteristics:

More in line with the law of diminishing asset value over time.

Cautions

Stability of depreciation policy:
Enterprises should develop a uniform depreciation policy and keep it relatively stable to avoid frequent adjustments.
Selection of depreciation methods:
The selection of depreciation methods should be in line with accounting standards and truly reflect the changes in the value of assets.
Periodic review:
Enterprises should regularly review fixed assets and adjust depreciation methods or depreciation lives according to the actual situation.
Tax impact:
The choice of depreciation method will affect the enterprise's income tax, and the enterprise should consider both financial and tax factors.

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