Useful Life • Useful Life or Economic Life is the time period for machine is expected to operate efficiently. • It is the life for which a machine is estimated to provide more benefit than the cost to run it. Grouping of Fixed Assets Major groups of Fixed Assets: • Land • Building • Plant and Machinery • Furniture and Fixtures • Office Equipment • Vehicles No depreciation is charged for 'Land'. In case of 'Leased Asset/Lease Hold Land' the amount paid for it is charged over the life of the lease and is called Amortization. Methods of calculating Depreciation There are several methods for calculating depreciation. At this stage, we will discuss only two of them namely: • Straight line method or Original cost method or Fixed installment method • Reducing balance method or Diminishing balance method or written down method.Straight Line Method Under this method, a fixed amount is calculated by a formula. That fixed amount is charged every year irrespective of the written down value of the asset. The formula for calculating the depreciation is givenbelow: Depreciation = (cost - Residual value) / Expected useful life of the asset Residual value is the cost of the asset after the expiry of its useful life. Under this method, at the expiry of asset's useful life, its written down value will become zero. Consider the following example:• Cost of the Asset = Rs.100,000 • Life of the Asset = 5 years • Annual Depreciation = 20 % of cost or Rs.20,000Written down value method • Cost of the Asset = Rs. 100,000 • Annual Depreciation = 20% ? Year 1 Depreciation = 20 % of 100,000 = 20,000 ? Year 1 WDV = 100,000 - 20,000 = 80,000 ? Year 2 Depreciation = 20 % of 80,000 = 16,000 ? Year 2 WDV = 80,000 - 16,000 = 64,000 Illustration: Cost of an asset: Rs. 120,000 Residual value: Rs. 20,000 Expected life: Rs. 5 years Financial Statement Analysis-FIN621 VUCopyright© Virtual University of Pakistan 82 Calculate depreciation and the written down value of the asset for five years. Solution Straight line methodDepreciation = (120,000 - 20,000) / 5 = Rs. 20,000Particulars Depreciation (Rs) WrittenDown Value (Rs.) Depreciable costDep. Of the 1st year Dep. Of the 2nd year Dep. Of the 3rdyear Dep. Of the 4th year Dep. Of the 5th year (20,000) (20,000)(20,000) (20,000) (20,000) 100,00080,000 60,000 40,000 20,000 0Reducing Balance Method Under this method, depreciation is calculated on written down value. In the first year, depreciation is calculated on cost. Afterwards written down value is calculated by deducting accumulated depreciationfrom the cost of that asset(cost - accumulated depreciation) and depreciation is charged on that value. In this method, the value of asset never becomes zero. Consider the following example: Cost of an asset Rs. 100,000 Expected life Rs. 5 years Depreciation rate 20% SolutionParticulars Depreciation (Rs) AccumulatedDepreciation (Rs.) Written DownValue (Rs.) Depreciable cost Dep. Of the 1st year 100,000 x 20% Dep. Of the 2nd year 80,000 x 20% Dep. Of the 3rd year 64,000 x 20% Dep. Of the 4th year 51,200 x 20% Dep. Of the 5th year 40,960 x 20% 20,00016,000 12,800 10,240 8,19220,000 36,000 48,800 59,04067,232 100,000 80,000 64,00051,200 40,960 32,768 You see, at the end of five years, WDV of the asset is Rs. 32,768, not zero. But in case of straight line method, the WDV, after five years was zero. So, in the opinion of some people, reducing balance
By extending the estimated useful life and increasing the salvage value of fixed assets, a company can reduce depreciation expenses, which would raise net income. However, this can lead to inaccurate financial reporting and misrepresentation of the company's true financial performance. Eventually, it can affect investors' trust and the company's overall reputation.
The annual depreciation for the refrigerator using the straight-line method would be calculated as follows: (Cost of the refrigerator - Estimated salvage value) / Useful life = ($198,500 - $30,500) / 15 years = $168,000 / 15 years = $11,200 per year.
The annual depreciation expense for the delivery van would be calculated as (Cost - Salvage Value) / Useful Life. In this case, the annual depreciation expense would be (23000 - 3000) / 5 = 4000. For December, you would have incurred 4/12 of the annual depreciation expense, which equals 1333.33.
To calculate depreciation using the Written Down Value method, you start with the initial cost of the asset, subtract the accumulated depreciation from previous periods, then apply the depreciation rate to the remaining value. The formula is: Depreciation expense = (Beginning book value - Salvage value) x Depreciation rate. This method allows for higher depreciation expenses in the early years of an asset's life.
The straight-line balance method calculates depreciation by dividing the asset's cost minus its residual value by its useful life. In contrast, the diminishing balance method calculates depreciation by applying a fixed percentage to the asset's book value each period, resulting in higher depreciation expenses in the early years of an asset's life.
The double declining balance method depreciates the asset at twice the straight-line rate. To calculate the annual depreciation expense, you first find the straight-line depreciation rate by dividing the depreciable cost (original cost - salvage value) by the useful life. In this case, the depreciable cost is $33,000 - $3,000 = $30,000. The straight-line rate is $30,000 / 5 years = $6,000 per year. Double that rate to get the double declining rate of $12,000 per year. Therefore, the depreciation for the first year would be $12,000.
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Depreciable Value: It is the value of asset up to which any asset can be depreciated. Salvage Value: It is the value which a company can get on sale of fully depreciated asset. Estimated useful Life: It is that life of an assets which a company determine at the time of purchase for which an asset can be utilized in business to generate revenue.
Companies that do Motorcycle salvage are known as 'Salvage' companies. They will salvage parts to sell and /or rebuild cycles for customers for profit.
No company by the name of Salvage known to me.
The estimated salvage value of a fixed asset refers to the expected residual value of the asset at the end of its useful life. It is an estimate of how much the asset could be sold for or its scrap value. This value is important for calculating depreciation expenses and determining the asset's net book value. The specific salvage value can vary depending on factors such as market conditions, technological advancements, and the condition of the asset.
If your car is financed you cannot sell it to a salvage company. Even if the car is beyond repair it does not technically belong to you until you have finished paying for it. Once you pay the finance company off you can sell it to anyone you please. The salvage company won't or shouldn't purchase that vehicle without a clean title.
Original cost, estimated salvage value, and estimated useful life.
Freeway insurance
Possibly. Try a salvage company.
yes- unless you agree to accept salvage as part of your settlement in which case the insuror transfers ownership to salvage company
If you took the money from the insurance company you have agreed to the salvage title and there's nothing you can do about it. Now the car just lost 40% of its value because of the salvage title but I assume you made money on the insurance payout. If you refused the insurance money and fixed the car yourself for $5K the title would have remained clean. Now if you didn't file a claim and they still salvaged the car title you can either fight it if they didn't pay you or take the money and drive the car til the wheels fall off.
can be done by insurance company at time it is totaled out by them