Show depreciation formula with example, Accounting Basics

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Q. Show depreciation formula with example?

The depreciation formula (straight-line) to calculate straight-line depreciation for a one-year period is:

Annual deprecation = (Asset cost - Estimated residual value) / Estimated years of useful life

To exemplify the use of this formula recall that on December 1 Micro Train Company buy four small trucks at a cost of USD 40000 the journal entry was:

2340_Depreciation formula.png

The approximate residual value for each truck was USD 1000 consequently Micro Train approximate the total residual value for all four trucks at USD 4000. The company approximate the useful life of each truck to be four years. By means of the straight-line depreciation formula Micro

Train calculated the annual depreciation on the trucks as follows

Annual deprecation = USD40000 -USD 4000 4 years = USD9000

The sum of depreciation expense for one month would be 1/12 of the annual amount. Therefore depreciation expense for December is USD 9000 ÷ 12 = USD 750.


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