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KellyV2012
KellyV2012, Bachelor's Degree
Category: Business and Finance Homework
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Experience:  Business Administration Option is Accounting and Finance
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What is straight line depreciation with no salvage and with

Resolved Question:

What is straight line depreciation with no salvage and with salvage? What is accelerated depreciation using the units of production (units of service) method?
Submitted: 4 years ago.
Category: Business and Finance Homework
Expert:  Steve replied 4 years ago.

hello,

 

what is the minimum requirement for this?

 

Expert:  Steven, M.Acc. replied 4 years ago.
Straight-line depreciation is calculated by taking the cost of the item and subtracting the expected salvage value, if any. That amount is then divided by the item's life expectancy in years. Assume machinery with a cost of $50,000, a salvage value of $10,000, and a life expectancy of 4 years. Straight-line depreciation is $10,000 per year [($50,000 cost – $10,000 salvage value) / 4 years]. If there is no salvage value, then straight-line depreciation is simply the cost divided by the expected life: $50,000 cost / 4 years = $12,500 per year.

Accelerated depreciation is any method in which more depreciation is taken in the earlier years of the asset's life. The units of production method is one of those methods, and is based on an asset's usage, activity, or parts produced instead of on the basis of time. Like straight-line depreciation, any salvage value is first subtracted from the cost. That value is then divided by the number of units representing the asset's life. Each period, the value of the units consumed is calculated to figure the depreciation. Assume a vehicle costing $25,000, with a salvage value of $5,000 and a life expectancy of 100,000 miles. Each mile has a depreciation value of $0.20 [($25,000 cost – $5,000 salvage value) / 100,000 miles]. If the vehicle is driven 21,250 miles in its first year, the depreciation expense is $4,250 [21,250 miles × $0.20 per mile].

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Expert:  KellyV2012 replied 4 years ago.

1. Straight Line Depreciation Method

The straight line depreciation method calculates depreciation expense by spreading the cost of the fixed asset evenly over the life of that asset.

Depreciation Calculation without Salvage Value

To calculate depreciation expense on a fixed asset without a salvage value the cost is divided by the life.

SL = Cost / Life

Example: A table is purchased for $567.65. The expected life is 5 years.

Calculate the annual depreciation as follows:
567.65 / 5 = 113.53

Each year for 5 years $113.53 would be expensed. At the end of 5 years the book value of the asset would be zero. (The cost of $567.65 less 5 years of depreciation expense at $113.53 per year.)

Depreciation Calculation with Salvage Value

To calculate depreciation expense on a fixed asset with a salvage value, the depreciable value of the fixed asset is divided by the life of that asset. The depreciable basis is the cost less the salvage value.

SL = (Cost - Salvage Value) / Life

Example: A table is purchased for $567.65. The expected life is 5 years. There is a $50.00 salvage value.

Calculate the annual depreciation as follows:
(567.65 - 50.00) / 5 = 103.53

Each year for 5 years $103.53 would be expensed. At the end of 5 years the book value of the asset would be $50.00. (The cost of $567.65 less 5 years of depreciation expense at $103.53 per year.)

2. Accelerated depreciation is the depreciated of fixed assets at a very fast rate early in their useful lives. The primary reason for using accelerated depreciation is to reduce the reported amount of taxable income over the first few years of an asset’s life, so that the company pays a smaller amount of income taxes during those early years.

Accelerated depreciation is automatically recognized with the units of productions method, since this method recognizes that use may be greater in the early years of the asset. Some assets may not be appropriately depreciated using the units of production or the straight-line method, if a greater amount of depreciation should be recognized in the early years. There are two popular methods of accelerated depreciation are used such as the Sum-of-the-years-digits (SYD) method and declining balance method.

Unit of production method:

Annual Depreciation Expense={(Cost of Fixed Asset-Residual Value)/Estimated total production} x actual production

Expert:  KellyV2012 replied 4 years ago.

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KellyV2012, Bachelor's Degree
Satisfied Customers: 308
Experience: Business Administration Option is Accounting and Finance
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