A piece of equipment is purchased for $40,000 and has an estimated salvage value of $1,000 at the end of the recovery period. Prepare a depreciation schedule for the piece of equipment using the straight-line method with a recovery period of five years. report the annual depreciation and the annual book value.
Ans:
End of Year | Annual Depreciation | Annual Book Value |
0 | 40,000 | |
1 | 7800 | 32,200 |
2 | 7800 | 24,400 |
3 | 7800 | 16,600 |
4 | 7800 | 8,800 |
5 | 7800 | 1,000 |
Explanation:
P = $40,000
S = $1000
n = 5
Yearly depreciation ( as per straight line method ) ;
D = ( P - S ) / n
= ( $40,000 - $1,000 ) / 5
= $39,000 / 5
= $7800
Book Value for the current year = Book value of the previous year - Depreciation value
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