Formula for rate of depreciation class 8

1
by mayank10

• Brainly User
2016-03-15T08:40:12+05:30

Annual Depreciation Expense = (Cost of Asset – Salvage Value)/Estimate Useful Life

Example:  A machine costs \$75,000 to purchase and has estimated useful life of five years, upon which time it will have an estimated salvage value of \$5,000.  Using the formula above, we can determine that annual depreciation will be \$14,000 per year.  (\$75,000-\$5,000)/5 Years = \$14,000.  The effect of the half year averaging convention is to reduce the first year depreciation by 1/2.  Therefore, the 1st year’s depreciation of \$14,000 will be reduced to \$7,000  The simplicity of this calculation is why many prefer to use this method.

(Cost – Salvage)/Recover Period
(\$75,000 – \$5,000)/5=\$14,000 with half year convention.
Note:  \$14,000 in this example is normal annual depreciation.  Based on the following assumptions, the allowed depreciation is:
-Tax/accounting year end of 12/31
-Annual depreciation of \$14,000
-With half year convention, 1/2 or \$7,000 is allowed.

Therefore:

Acquired in January =\$7,000/12=\$583.33 per month allowedAcquired in March = \$7,000/10=\$700 per month allowedAcquired in August=\$7,000/5=\$1,400 per month allowedAcquired in December=\$7,000/1=\$7,000 for the month of December