John Morse Corporation buys a van for $16,000. The estimated life of the van is four years. The residual value of the van is $4,000. After two years, the van is sold for $8,000. What was the difference between the book value and the amount received from selling the van if John used the straight-line method of depreciation?
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.
John Morse Corporation buys a van for $16,000. The estimated life of the van is four years. The residual value of the van is $4,000. After two years, the van is sold for $8,000. What was the difference between the book value and the amount received from selling the van if John used the straight-line method of
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