Explanation Depreciation : Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life. Straight-line method: Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset. The following is the formula to calculate the depreciation. Depreciation cost = Cost of the asset-Salvage value Estimated useful life of the asset Compute the book value of a three-year-old machine. Particulars Amount ($) Amount ($) Original cost of the machine 31,000 Less: Accumulated depreciation 18,000 Book Value at the end of Year 3 $13,000 Table (1) Working Notes: Compute the depreciation expense for one year

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Author: Libby

Publisher: MCG

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Chapter 8 Solutions

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