Sample Question - Straight Line Depreciation

Question

Use the straight line depreciation model to find annual depreciation of your company's lime green and tangerine TIG welders to loose there value as the welders you employ are less than excited to be seen using them. Also find the book value after year five. The welders were bought on sale, due to the color scheme, for $1032.22 each; they have an estimated salvage value of $400.00; and a useful life of 15 years.

Answer

First let's find the useful equations.

Straight Line Method of Depreciation:
Dn = (I - S) / N
,where
Dn = Annual Depreciation
I = Cost of the asset
S = Salvage value at the end of the asset's useful life
N = Useful life

Book Value:
Bn = I - (D1 + D2 + D3 + … + Dn)
,where
Bn = Book value for year n
Dn = Depreciation for year n

Determine the useful information in the problem statement

I = $1032.22
S = $400.00
N = 15 years

Solve

Dn = ($1032.22 - $400.00) / 15 year
Dn = $42.15 / year

B5 = $1032.22 - 5($42.15)
B5 = $821.47

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