Depreciation Flashcards
1
Q
What is Depreciation?
A
An accounting estimate of the FALL in value of a fixed asset over time. Eg: machine
2
Q
Residual Value=
A
Value at the end of its life
3
Q
Net Book Value=
A
Cost of machine- depreciation
4
Q
Straight line method=
A
The value of the asset is reduced equally per year over its lifetime.
Cost-residual value
—————————
Estimated useful life
5
Q
Reducing balance method=
A
This method applies a constant percentage rate of depreciation each year. Eg:
The Machine costs £100,000 it depreciates 10% each year and its life time is 4 years. Calculate how much it is worth after 4 years.
Year 1=100,000 * 0.9= 90,000
2= 90,000 *0.9= 81,000
3= 81,000 0.9= 72,900
4= 72,9000.9= £65,610
