Question

How is depreciation allocated when using the straight-line method? Depreciation expense is allocated in proportion to an asset's use in operations A constant percentage of an asset's book value as of the beginning of each period is allocated to depreciation expense • An equal amount of depreciation expense is allocated each period of an asset's useful life

Answer 1

Solution a:

The formula for calculation of the annual depreciation as per straight line method of depreciation is

Annual depreciation = ( Cost of the asset – Estimated Residual Value ) / Estimated useful life of the asset.

From the above formula it can be inferred that the cost of the asset remaining after deducting salvage value is allocated to each period of the asset’s useful life.

Thus as per the above formula the solution is Option 3:

An equal amount of depreciation expense is allocated each period of an asset’s useful life.

Solution b:

Salvage value is the expected net recovery when the asset is sold or removed from service.

It is the estimated amount expected to be received when an asset is sold or removed from service.

Thus above statement is true.