Question

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 1

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.