Question

How is depreciation different from what you thought before reading and working with this chapter?

Someone else (lets get a lot of short responses - no one person needs to answer all questions, although I would like to hear your questions that arise from this discussion): What is book value? How is it different from market value?

Someone else - what is salvage value?

Someone else - what is depreciable cost?

Let me hear your questions on the different methods of depreciation. Why would you maybe choose to use "units of production" instead of straight-line? Lets try to get some short responses that you may use to follow up with questions for one another. Each student can focus on one of these questions. I think that works better than getting all questions answered by each student responding. I want to ensure that we are reading each other's work as it will generate questions and get us to a better understanding.

Answer 1

Answer:

Depreciation- It is a reduction in value of an asset over a period of time because of time decay and its usage. When an asset is used, it does not remain the same as it was when we bought it, it will lose its value as the time passes. Companies depreciates assets for accounting and tax purpose.

Formula of calculating depreciation-

Dep. = (Cost of asset - Salvage value) / Useful life in years

Examples of assets on which depreciation is charged-

• Furniture & Fixtures
• Building
• Machinery
• Computers
• Vehicles

Depreciation is a non cash expense that is calculate with the help of several methods.

Book Value- It is the the net value of the company that creditors will get if company gets liquidated. It is the value in the books of accounts and financial statements.

Book value = Total assets - Intangible assets(Goodwill, Patent) - Total liabilities

Market value- It is the current market value of the company. Each and every public company has its market value. It is the value of the company as per stock market.

Market value = Number of shares outstanding in the market * Current price per share

Salvage value- It is the estimated resale value of an asset. It is very important in calculating depreciation of an asset. It is the book value of the asset after all depreciation has been done.

Depreciable cost- It is the basis of depreciation. It is the cost that can be depreciated n an asset over a period of time.

Depreciable cost = Cost - Salvage value