You have a piece of equipment that was purchased for your project recently for $5000 and is expected to last 5 years in production, At the end of the 5 years the expected worth of the equipment is $2000. Using straight-line depreciation, what is the amount that can be written off each year??
A.
$600
B.
$1200
C.
$3000
D.
Zero
Explanation:
The straight-line depreciation takes the purchase value of the item, minus the salvage price of the item, divided by number of time periods. calculation is (5000-2000)/5 = $600Depreciation is technique used to compute the estimated value of any object after few years.
Straight line depreciation: The same amount is deprecated (reduced) from the cost each year
The calculation of straight line depreciation is very simple:
($purchase price $disposal value)/years,
where
– Years = the expected life of the asset (actual or set by legislation*)
– Disposal value = the likely sale price at the end of the assets useful life.
*This is often standardised to a 5 year life and equates to 20% depreciation per annumDouble-declining balance – In the first year there is a higher deduction in the value – twice the amount of straight line. Each year after that the deduction is 40% less than the previous year.
Accelerated depreciation Sum of year depreciation – Lets say the life of an object is five years. The total of one to five is fifteen (The sum-of-the-years-digits are: 5 + 4 + 3 + 2 + 1, or 15.). The numerator of the fraction for the first year is the highest digit in this case 5/15. The second years numerator is the next highest digit in this case 4/15 and so on.