Question

Straight Line Depreciation - Commercial Lawn Mower: Acquired January 1. Purchased for $14,000; salvage value is $2,000. Useful life is 5 years. Remember: the asset cannot depreciate below its salvage value.

A. How is the depreciable cost for the straight-line method computed?

B. What is the depreciable cost amount?

C. Show your coputation to calculate the annual depreciation expense.

D. Complete the following Straight Line Depreciation table:

Year	Opening Value	Depreciation Expense	Net Book Value

E. What pattern is clear for the annual depreciation expense under the straight line method?

Answer 1

Solution:

A. How is the depreciable cost for the straight-line method computed ?

1) Under straight line method, depreciable cost will be calculated by deducting the salvage value (if any) from initial cost of the asset i. e., Cost - Salvage Value.

B. What is the depreciable cost amount?

Depreciable cost = Cost - Salvage Value = $ 14,000 - $2,000 = $ 12,000

C. Show your computation to calculate the annual depreciation expense.

Annual depreciation expense = [Cost - Salvage Value] / Useful life of an asset = [$ 14,000 - $2,000] / 5 years = $ 2,400.

D. Complete the following Straight Line Depreciation table:

Year	Opening Value	Depreciation Expense	Net Book Value
1	$                 14,000	$                                 2,400	$                      11,600
2	$                 11,600	$                                 2,400	$                        9,200
3	$                   9,200	$                                 2,400	$                        6,800
4	$                   6,800	$                                 2,400	$                        4,400
5	$                   4,400	$                                 2,400	$                        2,000

E. What pattern is clear for the annual depreciation expense under the straight line method?

1) Under straight line method, every year depreciation expense is same.

2) It is because of deducting the depreciable cost over the useful time of the asset.

3) That is the only pattern that is visible for annual depreciation expense under straight line method.