Present worth is $7,944 ( Considering some assumptions )
Depreciation is the reduction in the value of asset due to wear and tear. Depreciation is charged only on fixed asset on a straight line or on a fixed rate per year.
Computer and other hardware of $12,000 to be depreciated over 5 years with no salvage value
<u>Depreciation </u><u>per year = ( Cost of Asset - Salvage value ) / Useful life </u>
= ($12,000 - $0) / 5 = $12,000/5 = $2,400 per year
It is assumed that the assets are donated at the end of third year and depreciation of that year is fully charged.
Depreciation for 3 years = $2,400 x 3 = $7,200
Now As all these event happened in the past and it is assumed that we are standing at the end of year 3, the present worth of the all these depreciation is actually the future value of these deduction because it was made earlier.
Present worth of depreciation is as follows
Present Worth = [$2,400 x (1+0.1)^2 ] + [$2,400 x (1+0.1)^1 ] + [$2,400 x (1+0.1)^0 ] = $2,904 + $2,640 + $2,400 = $7,944
Third deduction was made at the date when worth is being calculated.
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