Question

Purchased a piece of equipment for with a three year life and no residual value. using the straight line method, what is the adjusting entry for depreciation expense at the end of year 1?

Answer 1

Amortization of assets with predetermined useful lives is included in depreciation.

What is straight line method of Depreciation?

During the asset's anticipated useful life, depreciation is allocated in order to charge a fair percentage of the depreciable amount in each accounting period. Amortization of assets with predetermined useful lives is included in depreciation. A typical form of depreciation that reduces the value of a fixed asset over the course of its useful life is straight line depreciation. It is employed to lower a fixed asset's carrying amount throughout the course of its useful life. When using straight line depreciation, the cost of an asset is lost over each accounting period by the same amount.

Straight-line depreciation expense is computed using this formula:

Historical Cost – Residual Value /Estimated Useful Life

Historical Cost: Purchase price and all incidental costs of the asset

Residual Value or Scrap Value: Estimated value of the fixed asset at the end of its useful life

Useful Life: Amount of time the fixed asset can be utilized (in months or years).

To learn more about Depreciation refer to:

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