Question

A bike is bought for $1200 and sold 10 months later for $940.

Answer 1

Value

Depreciation is defined as the reduction in value of an asset over time. In this case, value reduction is due to wear and tear of an equipment (bicycle).

a. The depreciation value would simply be the difference in initial and salvage value divided by time in years.

Depreciation = (Initial value – Salvage value) / Number of years

b. Substituting the given values into the equation where:

Initial value = $1200

Salvage value = $940

Number of years = 10 months = 10/12 years

Calculating:

Depreciation = ($1200 - $940) / (10/12 years)

Depreciation = $312 / year

or

Depreciation = $26 / month