[Nissho Bookkeeping x Music] Turn the passage of time into expenses! Master the 4 calculation methods of depreciation with a duet! "Depreciation Harmony" 🦊🐺🎹

Hello! Welcome to "Pon & Ten's Study Room"!
Thank you as always for watching our videos!

【🔽 Pon & Ten's Study Room】
"Studying is hard because there's so much to memorize..."
"I can't get it into my head even after reading the textbook..."
For those of you like that, here is the magic of music! 🦊📘

This time, we bring you a long-awaited duet song woven by the energetic "Pon" and the cool "Ten"! 🎶

🌲 This time's theme is "Depreciation"!

This theme appears throughout all levels of Nissho Bookkeeping and troubles many learners.

"I get the formulas for the straight-line method and the declining-balance method mixed up!"
"How do I calculate the fractions for the sum-of-the-years'-digits method again?"
"What are the conditions for assets that can use the production-proportional method?"

We have prepared a song that will help you learn these "4 calculation methods" of depreciation, which are so easy to get confused about, while enjoying a mellow and beautiful melody!

The song title is "Depreciation Harmony"✨
Surrender yourself to the harmony of Pon and Ten, set to the sound of quiet and beautiful piano and strings, and you will never be confused by calculation formulas during the actual test again!

🔽 First, check out the video!

⚡ This time's theme: What are depreciation and the 4 calculation methods?

Fixed assets such as buildings, machinery, and vehicles are not expensed in full in the year they are purchased, but are allocated as expenses little by little over the period they are used (useful life). This is "depreciation."

Valuable assets turn into expenses over time, and by correctly matching them with the revenue of the current period (matching principle), the company's correct profit is derived.

This time, let's uncover the 4 magics (methods) of "how to calculate" these depreciation expenses together with the two of them!

① The First Magic: Straight-line method 📏

【📝 Details & Bookkeeping Explanation!】
As the name suggests, the "straight-line method" is the most basic and simple calculation method where the "same amount (fixed amount)" is recorded as an expense every year.
💡 Formula: (Acquisition Cost - Residual Value) ÷ Useful Life

This is a familiar calculation from Bookkeeping Level 3. It is often used for things like buildings and equipment whose value decreases evenly over time. Since the same amount is recorded every year, it is characterized by stable profit calculation. Just like a waterwheel turning steadily, let's record it in the books with the same rhythm!

② The Second Magic: Declining-balance method 📉

【📝 Details & Bookkeeping Explanation!】
The "declining balance method" is a calculation method where depreciation expenses are largest in the first year after purchase and gradually decrease as the years pass.
💡 Formula: Undepreciated balance (Acquisition cost - Accumulated depreciation) × Depreciation rate

Because you can record large expenses in the early stages, you can expect a "tax-saving effect" by suppressing profits and reducing taxes! It is perfect for assets like machinery and equipment that perform best when first purchased and whose value tends to decrease thereafter. It is a method where a strong start is essential!

③ The Third Magic: Sum-of-the-years'-digits method 🔢

【📝 Details & Bookkeeping Explanation!】
The "sum-of-the-years'-digits method" is a bit niche and complex. Like the declining balance method, it is a method where the amount is large at first and gradually decreases (diminishes), but it uses "fractions" for calculation.
💡 Formula: Depreciable amount (Acquisition cost - Residual value) × (Remaining useful life ÷ Sum of the years of useful life)

For example, if the useful life is 5 years, the denominator is "1+2+3+4+5 = 15". And since the numerator for the first year is "5", the second year is "4", and so on, it is characterized by decreasing regularly like walking down the steps of an arithmetic series. It is an advanced magic that is also asked about in the Nissho Bookkeeping Level 1 exam!

④ The Fourth Magic: Units-of-production method 🚗

【📝 Details & Bookkeeping Explanation!】
Finally, there is the "units-of-production method," which calculates expenses based on the "amount used (activity level)" rather than time (number of years).
💡 Formula: Depreciable amount (Acquisition cost - Residual value) × (Actual usage in the current period ÷ Estimated total usage)

It is only permitted for assets where "how much it was used" can be clearly measured, such as automobiles (mileage), aircraft, and mining equipment. Because expenses are lower in years when it is not used, it is a calculation method that can truly be called the "form of justice," as revenues and expenses correspond most realistically!

🦊🐺 MV Highlights: The beautiful nature and flow of time woven by Pon and Ten!

This MV is a beautiful animation with a watercolor touch, like a picture book, that makes you feel the flow of time and the changing of nature!

Pon is alone in a quiet room, opening a thick ledger. The sight of Pon staring at the water's surface by the river and calmly proceeding with calculations like a turning watermill is impressive📖

Then, as night falls, while wrapped in a beautiful starry sky and the light of fireflies, Pon enters the world of the "declining balance method" with Ten. The contrast between Pon's red hair and Ten's blue hair shines, and the scene where the two hold hands and look up at the sky is truly "Depreciation Harmony"!

The gentle melody of piano and strings overlaps with their singing voices, running through a space (harmony) where you can learn softly, yet positively🌿✨

In conclusion

Depreciation is an important process for deriving a company's correct profit, connecting financial statements, and supporting tomorrow. If you panic about the calculation method during a test, please remember the phrase "Straight-line is equal! Declining balance is undepreciated balance! Sum-of-years is fractions! Units-of-production is degree of use!" and the duet of the two!

💡 Today's "Review Memo (4 Magics)"

🎯 Straight-line method = (Acquisition cost - Residual value) ÷ Useful life
【A fixed amount every year, calmly!】

🎯 Declining Balance Method = Unamortized Balance x Depreciation Rate
【Start big, then get smaller!】

🎯 Sum-of-the-Years' Digits Method = Depreciable Amount x (Remaining Years ÷ Sum of Years)
【Go down the stairs of fractions!】

🎯 Units of Production Method = Depreciable Amount x (Current Period Usage ÷ Total Estimated Usage)
【Only for what you've used - based on the degree of utilization!】

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This time, we brought you a duet by Pon and Ten!
With this, you too are a depreciation master... 🦊🐺🎤✨

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