The initial cost of the machine including its installation is 930,000. The expected life of the machine is 13 years for depreciation. The estimated salvage value of the equipment is 66,000 and the cost of dismantling is 22,000. Using the Declining Balance Method, what is the annual depreciation charge and what is the book value of the machine at the end of the eight year.

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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.