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How to calculate depreciation using straight line method?
The solution is given below −
Cost of machine = Rs. 200000 Salvage value = Rs. 25000 Total life = 8 years
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
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
|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|
|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.
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