In: Accounting
A machine was purchased on January 1 for $100,000. The machine has an estimated useful life of 4 years with a salvage value of $10,000. Under the straight-line method, accumulated depreciation at the end of year 2 is:
Answer)
Calculation of Accumulated Depreciation - Straight Line Method
Under straight line method, cost of acquisition net of expected salvage value is charged as depreciation evenly over the estimated useful life of the asset. The formula for depreciation under Straight Line Method is:
Depreciation for each year = (Cost of Acquisition – Salvage value)/ Estimated useful life of the asset
Facts of the Question:
Cost of Acquisition = $ 1,00,000
Estimated useful life of the asset = 4 years
Salvage Value = $ 10,000
Depreciation for each year = ($ 1,00,000 - $ 10,000)/ 4
= $ 22,500
Accumulated Depreciation
Particulars |
Year 1 |
Year 2 |
Opening Balance |
- |
22,500 |
Depreciation for the year |
22,500 |
22,500 |
Closing Balance |
22,500 |
45,000 |
Solution: Since an amount of $ 22,500 will be charged as depreciation each year, the value of accumulated depreciation at the end of year 2 will be $ 45,000.