Using the replacement cost method, calculate the actual cash value of a roof that was destroyed 15 years after the purchase of it. The roof has a 30-year life span and the insurance company has calculated the replacement cost for the roof at $5,000
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.
Using the replacement cost method, calculate the actual cash value of a roof that was destroyed 15 years after the purchase of it. The roof has a 30-year life span and the insurance company has calculated the replacement cost for the roof at $5,000
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