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a company purchased a plant for 20000. The useful life of the plant is 8 year and the estimated residual value after 8 year is 4000. Determine the Rate of depreciation if management wants to depreciate it by straight line method.
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a company purchased a plant for 20000. The useful life of the plant is...
Calculation of Straight Line Depreciation Rate
To find the rate of depreciation using the straight line method, we need to use the formula:
Depreciation rate = (Cost of Asset - Residual Value) / Useful Life
Given Information:
- Cost of the plant = $20,000
- Residual value after 8 years = $4,000
- Useful life of the plant = 8 years
Calculation:
- Depreciation rate = (20000 - 4000) / 8
- Depreciation rate = 2000
The depreciation rate for the plant using the straight line method is $2,000 per year.
Explanation of Straight Line Depreciation
Straight line depreciation is a method of calculating the depreciation of an asset over its useful life. Under this method, the depreciation expense is the same for each year of the asset's useful life. This method assumes that the asset's value decreases by an equal amount each year.
To calculate the depreciation expense using the straight line method, we need to subtract the estimated residual value of the asset from its cost and divide the result by its useful life.
In the given scenario, the cost of the plant is $20,000, and the estimated residual value after 8 years is $4,000. The useful life of the plant is also 8 years. Therefore, the depreciation rate is calculated as $2,000 per year.
This means that the company can deduct $2,000 from its taxable income each year for the next 8 years as the depreciation expense of the plant.
Advantages and Disadvantages of Straight Line Depreciation
Advantages:
- Simple and easy to calculate
- Provides a stable and predictable depreciation expense
Disadvantages:
- Does not consider the asset's changing value over time
- May not reflect the actual usage of the asset
- May not be suitable for assets with a shorter useful life
To find the rate of depreciation using the straight line method, we need to use the formula:
Depreciation rate = (Cost of Asset - Residual Value) / Useful Life
Given Information:
- Cost of the plant = $20,000
- Residual value after 8 years = $4,000
- Useful life of the plant = 8 years
Calculation:
- Depreciation rate = (20000 - 4000) / 8
- Depreciation rate = 2000
The depreciation rate for the plant using the straight line method is $2,000 per year.
Explanation of Straight Line Depreciation
Straight line depreciation is a method of calculating the depreciation of an asset over its useful life. Under this method, the depreciation expense is the same for each year of the asset's useful life. This method assumes that the asset's value decreases by an equal amount each year.
To calculate the depreciation expense using the straight line method, we need to subtract the estimated residual value of the asset from its cost and divide the result by its useful life.
In the given scenario, the cost of the plant is $20,000, and the estimated residual value after 8 years is $4,000. The useful life of the plant is also 8 years. Therefore, the depreciation rate is calculated as $2,000 per year.
This means that the company can deduct $2,000 from its taxable income each year for the next 8 years as the depreciation expense of the plant.
Advantages and Disadvantages of Straight Line Depreciation
Advantages:
- Simple and easy to calculate
- Provides a stable and predictable depreciation expense
Disadvantages:
- Does not consider the asset's changing value over time
- May not reflect the actual usage of the asset
- May not be suitable for assets with a shorter useful life
Community Answer
a company purchased a plant for 20000. The useful life of the plant is...
A company purchased a plant for 20000 the useful life of the plant is 8 year and the estimated residual value after 8 years is 4000 determine the rate of depreciation if management wants to depreciate it by straight line method
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a company purchased a plant for 20000. The useful life of the plant is 8 year and the estimated residual value after 8 year is 4000. Determine the Rate of depreciation if management wants to depreciate it by straight line method.
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a company purchased a plant for 20000. The useful life of the plant is 8 year and the estimated residual value after 8 year is 4000. Determine the Rate of depreciation if management wants to depreciate it by straight line method. for Class 11 2024 is part of Class 11 preparation. The Question and answers have been prepared according to the Class 11 exam syllabus. Information about a company purchased a plant for 20000. The useful life of the plant is 8 year and the estimated residual value after 8 year is 4000. Determine the Rate of depreciation if management wants to depreciate it by straight line method. covers all topics & solutions for Class 11 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for a company purchased a plant for 20000. The useful life of the plant is 8 year and the estimated residual value after 8 year is 4000. Determine the Rate of depreciation if management wants to depreciate it by straight line method..
a company purchased a plant for 20000. The useful life of the plant is 8 year and the estimated residual value after 8 year is 4000. Determine the Rate of depreciation if management wants to depreciate it by straight line method. for Class 11 2024 is part of Class 11 preparation. The Question and answers have been prepared according to the Class 11 exam syllabus. Information about a company purchased a plant for 20000. The useful life of the plant is 8 year and the estimated residual value after 8 year is 4000. Determine the Rate of depreciation if management wants to depreciate it by straight line method. covers all topics & solutions for Class 11 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for a company purchased a plant for 20000. The useful life of the plant is 8 year and the estimated residual value after 8 year is 4000. Determine the Rate of depreciation if management wants to depreciate it by straight line method..
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