Question

A piece of equipment is purchased for $40,000 and has an estimated salvage value of $1,000 at the

end of the recovery period, a recovery period is five years. Prepare a depreciation schedule for the

piece of equipment using the straight-line method

Answer 1

Given that the price of the equipment to be capitalised in the books = $40,000

Salvage value = $1,000

Actual recovery period = 5 years

Hence depreciation per year = (Cost - Salvage value)/ Useful life

= (40,000 - 1000)/5 = 7800 per years

Depreciation schedule can be shown as below.

Year	Cost of equipment	Opening Depreciation	Current year depreciation	Accumulated depreciation	Net book value
1	40,000	-	7,800	7,800	32,200
2	40,000	7,800	7,800	15,600	24,400
3	40,000	15,600	7,800	23,400	16,600
4	40,000	23,400	7,800	31,200	8,800
5	40,000	31,200	7,800	39,000	1,000

We can see that the net book value at the end of year -5 is nothing but the salvage value

Note- Depreciation can be directly charged to asset of it can be transferred to accumulated depreciation.

Here we can see both accumulated depreciation and the net book value of the asset