Problem 5 - Property Plant and Equipment Requirements:  Calculate the (A) Cost Basis, (B) Straight line, and (C) Activity Method for Depreciation                       Purchase of a Truck           Given  cost base Price of  $        110,000       Tax and delivery    $           10,000       Salvage Value    $           20,000       Asset Life   5 years                   Estimated Mileage Traveled per year       Yr 1                50,000       Yr 2                40,000       Yr 3                35,000       Yr 4                40,000       Yr 5                45,000                       210,000 Miles     (A)  Cost Basis       Calculations:               (B)  Straight Line Method                 Yr 1       Yr 2       Yr 3       Yr 4       Yr 5                 Calculations:                                             (C) Activity Method                 Yr 1       Yr 2       Yr 3       Yr 4       Yr 5                 Calculations:

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A:

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A: Answer

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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.