0:00
Hello everyone.
00:02
So we need to use different methods to depreciate the equipment to calculate that.
00:07
So firstly using straight line method now straight line depreciation method assumes that the asset depreciates evenly over its useful life.
00:30
The formula for calculating straight line depreciation is annual depreciation expense is equals to cost of asset minus salvage value divided by useful life.
01:19
Now using the given values annual depreciation expense for the equipment would be annual depreciation expense is equals to 50 ,000 minus 5 ,000 divided by 5 years that gives 9 ,000 per year.
01:55
Now declining balance depreciation the declining second method is declining balance depreciation so the declining balanced method assumes that the asset depreciates at a higher rate in the earlier years of its useful life and slows down in later years the formula for calculating the same is annual depreciation expense is equals to cost of a set minus accumulated depreciation multiplied by depreciation rate.
03:09
Now assuming a depreciation rate of 20%, the annual depreciation expense for the equipment would be annual depreciation expense is equals to 50 ,000 minus 0 multiplied by 20 % percent.
03:36
That gives 10 ,000.
03:41
That is for year 1.
03:45
Similarly, for year 2, annual depreciation expense is equals to 50 ,000 minus 10 multiplied by 20%.
03:58
This gives 8 ,000.
04:03
Next for year 3, annual depreciation expense is equals to 50 ,000 minus 20, sorry, it is 10 ,000 over here.
04:23
Minus 18 ,000 multiplied by 20 % that gives 6 ,400...