There are basically two ways of calculating depreciation.
1. Straight line Method:
In straight line method depreciates an asset by a fixed annual amount for the entire lifespan of the asset.
The disadvantage of this method is that the cost of repair and maintenance is very low during the initial years and the depreciation is disproportionately high, which goes on increasing during later years but the rate of depreciation remains the same.
Also, the replacement cost will always be higher than the initial cost due to inflation and technological changes.
2. Accelerated Rate:
In accelerated rate method, a higher rate is charged in the initial year, and the percentage amount of depreciation gradually decreases with passing years.
For high value medical equipments and which have a high rate of obsolescence due to changes in technology, the accelerated rate of depreciation is charged. For assets like buildings, plant, machinery, furnishings, etc. the straight line method can be adopted.
The rates should be decided by the administrator within statutorily laid down ceilings.