XYZ company purchased a vehicle for $6000. The vehicle will be used for 5 years and $1000 was estimated as its residual value.To calculate depreciation expenses follow these steps:Step oneCalculate the depreciable amount of the fixed assetDepreciable amount = cost - residual valueIn the current example,Cost = $6000Residual value = $1000By putting values in the formulaDepreciable amount = 6000 - 1000Depreciable Amount = 5000Hence, the depreciable amount is equal to $5000. This is the amount that will be depreciated over the useful life of that vehicleStep TwoCalculate the "sum of the digits fraction" (which is a kind of deprecation rate)At the time of purchase, the vehicle's useful life is = 5 yearsAt the beginning of 2nd year, the vehicle's useful life is = 4 years
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