A model SK-30 was purchased 2 years ago for $1600; it has been depreciated by straight-line depreciation using a 4-year life and zero salvage value. Because of recent innovations, the current price of the SK-30 is $995. An equipment firm has offered a trade-in allowance of $350 for the SK-30 on a new $1200 model EL-40. Some discussion revealed that without a trade-in, the EL-40 can be purchased for $1050. Thus, the originally quoted price of the EL-40 was overstated to allow a larger trade-in allowance. The true current market value of the SK-30 is probably only $200. In a replacement analysis, what value should be assigned to the SK-30?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
A model SK-30 was purchased 2 years ago for $1600; it has been
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