NewTech purchases computer equipment for $154,000 to use in operating activities for the next four years. It estimates the equipment’s salvage value at $25,000. Prepare a table showing depreciation and book value for each of the four years assuming straight-line depreciation. Straight-Line Depreciation Choose Numerator: / Choose Denominator: = Annual Depreciation Expense / = Depreciation expense / = Year Annual Depreciation Year-End Book Value Year 1 Year 2 Year 3 Year 4 Total
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
NewTech purchases computer equipment for $154,000 to use in operating activities for the next four years. It estimates the equipment’s salvage value at $25,000.
Prepare a table showing
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Annual Depreciation (Straight line method) = (Cost of the assets - Salvage value) / Life of the assets
= ($154,000 - $25,000) / 4 years
= $32,250
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