Q 9.36: On April1, 2014, Howard & Sons Law Firm, whose fiscal year-end is September 30, purchased a building for $1.4 million. The building was expected to remain in service for 50 years. It is being depreciated using the straight-line method. If the expected salvage value was $800,000, what will be the book value of the building on September 30, 2025? A $1,092,000 $1,262,000 C $1,078,000 Qu $1,268,000
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.
Annual Depreciation (straight line method) = (Cost of the assets - Residual value) / Expected life of the assets
= (1400000-800000)/ 50 years
= $12,000
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