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Is depreciation expense an estimate that is based on predictions of the asset's salvage value and useful life?


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2012-08-29 22:53:41
2012-08-29 22:53:41



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Depreciation on the income statement is the amount of depreciation expense that is appropriate for the period of time indicated in the heading of the income statement. The depreciation reported on the balance sheet is the accumulated or the cumulative total amount of depreciation that has been reported as expense on the income statement from the time the assets were acquired until the date of the balance sheet.Let’s illustrate the difference with an example. A company has only one depreciable asset that was acquired three years ago at a cost of $120,000. The asset is expected to have a useful life of 10 years and no salvage value. The company uses straight-line depreciation on its monthly financial statements. In the asset’s 36th month of service, the monthly income statement will report depreciation expense of $1,000. On the balance sheet dated as of the last day of the 36th month, accumulated depreciation will be reported as $36,000. In the 37th month, the income statement will report $1,000 of depreciation expense. At the end of the 37th month, the balance sheet will report accumulated depreciation of $37,000.

Formula for straight line depreciation is as follows: Depreciation = (Cost of asset - salvage value) / useful life of asset

Formula for calculating depreciation value Annual depreciation value = (Total cost - salvage value (if any) ) / useful life

Straigt line depreciation = (total cost of asset - salvage value)/ useful life of asset.

The formula for a straight line depreciation method is the Cost minus the Salvage Value over the Life in Number of Periods which will equal Depreciation.

Answer:The depreciation expense depends on the depreciation method, the cost, the residual value and the economic lifetime. Common depreciation methods include: straight line method, accelerated deprecation methods (including the double declining balance method), sum of digits method and production method. Straight line methodAssuming you are using the straight line method, the depreciation expense in the first year is: cost - residual value, divided by the economic lifetime= (5000 - 0) / 3 = 1666.67

daily enterprise purchasing 10.0 million machine. It will cost 50,000 to transport and install the machine. the machine has a depreciable life of 5 year and will have no salvage value If daily use straight-line depreciation what are the yearly depreciation expense associated with this machine?

Salvage value is defined as the value of the product after its useful life .In other words it is the value after depreciation. Salvage value also known as scrap value.

Annual depreciation is as follows: Annual depreciation = (actual cost - salvage value ) / useful life of asset annual depreciation = 170000 - 8500 / 4 = 40375 Annual depreciation with 150 percentage decline method = 40375 * 1.5 = 60563

Straight line method of depreciation is that under which any asset is depreciated in equal amount for every year till salvage value. Formula for straight line method: Depreciation = (Cost price - Salvage Value)/Number of years

The straight-line method of depreciation depreciates a capital asset evenly over its useful life until it reaches its salvage value (i.e., the value at which the asset can be sold at the end of its useful life). As an equation: Annual S/L Depreciation = (Cost - Salvage Value) / Useful Life

Salvage value is an estimate of the value of property at the end of its usefulness. It's the price that you'd get for it when you can't use it productively. How you use the property and for how long affect salvage value. If you let go of property while it's still in good operating condition, then the salvage value might be high. If you let go of property when it's not usable, its salvage value is its junk value. For more information, go to for Publication 534 (Depreciating Property Placed in Service Before 1987).

Depreciation is the process of reducing the historical cost of an asset by an annual amount relating to the amount of asset usage. [ Most assets are recorded at historical costs by accounting departments; based on the type of asset, certain methods must be used to reduce the value of the asset each year. Depreciation affects the company financial statements, moving the depreciation amount from the asset value on the balance sheet to the depreciation expense on the income statement. GAAP Methods Several methods of depreciation are used to record the depreciation expense on the accounting books. The most popular methods include: Straight-Line: This is the simplest depreciation method; it is calculated by subtracting the asset salvage value from the asset's historical cost, then dividing the remaining amount by the useful years of the asset. This creates a constant amount for companies to depreciate each year. Declining Balance: The declining balance method is used for assets with shorter life spans for a company. This allows companies to deduct higher depreciation amounts early in the asset life and lower amounts as the asset is phased out of the company. Companies will usually determine what percentage of the asset will be used each year and multiply it by the asset value to determine annual depreciation. Units of Production: Manufacturing companies may use this method for assets used for production purposes only. It is calculated by subtracting the salvage value from the historical asset cost; this amount is then divided by the total unit production of the machine to get a per-unit depreciation amount. Each month, the units produced are multiplied by the per-unit depreciation amount to calculate the expense. Tax Method When calculating depreciation for U.S. tax purposes, all assets entered into service by a company after 1986 must use the Modified Accelerated Cost Recovery System (MACRS). The Internal Revenue Service (IRS) provides asset classes for companies to determine the useful life and asset salvage value for tax purposes.

Annual depreciation = total cost - salvage value / number of yearsAnnual depreciation = (198500 - 30500) 168000Annual depreciation = 168000 / 15 = 11200

Rate of depreciation = 1-(salvage value/Cost of asset)^(1/n) n-> useful life of the asset. This rate of depreciation is charged on the net book value of the asset of each year.! The depreciation rates are high at the start and low towards the end of useful life of the asset

Under written down balance method depreciation is charged from original value and after that on written down balance until useful life of asset and any amount remaining at the end of useful life is the salvage value.

In determining the period of depreciation to be charged, one must consider the cost of the asset and its estimated salvage value. The usual life of the asset must also be considered together with its obsolescence.

market value is based on demand for the asset, whereas book value is based off the asset's depreciation rate (BV= cost - accumulated deperciation) which is determined by useful life and salvage value. (cost-salvage rate/life)

Salvage value is the estimated market value that an asset would fetch if sold at the end of the asset's useful life. Salvage value is used as an end-point for depreciation calculations. For example, say that a wheelbarrow is used for everyday duties. The wheelbarrow was purchased at the beginning of the fiscal year for $200 and has a useful life of five years. As an astute business person, you decide that you will be able to get $25 for the wheelbarrow after five years. At this point, assuming the purchase was right at the beginning of the fiscal year: * Own an asset worth $200 with a five-year life * The asset will be worth $25 at the end of its useful life * Yearly depreciation expense is $200 - $25 = $175 / 5yrs = $35 per year

Straight line method is the method in which asset cost is equally distributed over the entire life of asset and hence the amount of depreciation remain same for every month till salvage value. Under diminishing line method depreciation is charged on diminishing balance of asset every year for the life of asset and the amount remain at the end of life of asset is the salvage value.

Annual depreciation = 6000 - 400 / 7 = 800 Annual depreciation for 3.5 years = 2800 Journal entry for sale of asset Debit Accumulated Depreciation 2800 Debit Cash 450 [Debit] Loss on sale of asset 2750 Credit Asset 6000

DEPRECIATION is the cost we consider expired already relative to the use of the thing (asset) or passage of time or obsolescence. This is computed in several ways e.g straight line , double declining, sum of years digit etc. but the most common is straight line. To understand it better we compute it this way using straight line: (Cost of an Asset - Salvage value) / life of an asset in years = annual depreciation. Salvage value is the estimated value at the end of assets life or simply the value this asset can still be disposed. It is something that causes property, whether it be a home or a car to lessen in value over time.

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