- Data Structure
- Networking
- RDBMS
- Operating System
- Java
- MS Excel
- iOS
- HTML
- CSS
- Android
- Python
- C Programming
- C++
- C#
- MongoDB
- MySQL
- Javascript
- PHP
- Physics
- Chemistry
- Biology
- Mathematics
- English
- Economics
- Psychology
- Social Studies
- Fashion Studies
- Legal Studies
- Selected Reading
- UPSC IAS Exams Notes
- Developer's Best Practices
- Questions and Answers
- Effective Resume Writing
- HR Interview Questions
- Computer Glossary
- Who is Who
How to calculate depreciation using straight line method?
Solution
The solution is given below −
Cost of machine = Rs. 200000 Salvage value = Rs. 25000 Total life = 8 years
Formula
Straight line depreciation = (ADE) / (CA –SV)
Here ADE = Annual depreciation expenses, CA = Cost of the asset, SV = Salvage value
First method (using salvage value)
Cost of the asset – salvage value = 200000 – 25000 => 175000
Annual depreciation = ((cost of the asset) – (salvage value))/life of machinery
= 175000/8
= 21875
So by above calculations Rs. 21,875 will be depreciated from 200000 annually for 8 years.
Second method (if depreciation amount is known)
Straight line depreciation = (annual depreciation amount)/total depreciable cost
= 21875/175000
= 12.5%
Year | Book value (beginning of year) | Depreciation | Book value (End of year) |
---|---|---|---|
1 | Rs. 200000 | 21875 | Rs. 178125 |
2 | Rs. 178125 | 21875 | Rs. 156250 |
3 | Rs. 156250 | 21875 | Rs. 134375 |
4 | Rs. 134375 | 21875 | Rs. 112500 |
5 | Rs. 112500 | 21875 | Rs. 90625 |
6 | Rs. 90625 | 21875 | Rs. 68750 |
7 | Rs. 68750 | 21875 | Rs.46875 |
8 | Rs. 46875 | 21875 | Rs. 25000 |
From above table book value of the machinery at the end of 8 years is same as salvage value
Over the life of the asset it should be depreciate to its salvage value.