Total depreciation = Annual depreciation (n) 71 = 2 (n) n = 35.5 years Problem 2: Straight Line Method.

No expenses hit the income statement during the purchase. An asset account is debited and the cash or payables accounts are credited.

Although depreciated cost is most simply stated as asset cost minus accumulated depreciation, it is by no means a precise measure of value.

If a company purchased industrial equipment for $100,000 and subsequently depreciated the machine at the rate of $10,000 per year, the depreciated cost of the asset would be $30,000 at the end of seven years. When Jim purchases this asset, he will first record it on the balance sheet for the amount he paid for it by debiting the equipment account and crediting the cash account.

The depreciated cost concept is not meant to equate to the market value of an asset.

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Is This The Ultimate Value Investing Model? It takes the depreciable cost of an asset and allocates it over the useful life. Take a computer for example. The Best Stock To Profit From America's 'New Competitive Advantage', Simple Savings Calculator: See How You Can Grow Your Money, Calculate Cost of Monthly Used Car Loan Payments, Your Guide to Mortgages and Finding the Best Rates, Your Guide to Home Equity Loans and HELOC, 90,000 Reasons Why You've Got The Wrong Mortgage, Your FICO Score: 5 Things You Didn't Know Could Hurt It, 5 Secrets to Surviving the Mortgage Process, 5 Owner Financing Options for Home Buyers, How to Choose the Best Credit Card for You, 5 Devastating Mistakes That Turn 0% Credit Cards into Nightmares, Lower Your Credit Card Interest Rate with These Magic Words, How to Find a Personal Loan with the Best Rate, Using Leverage and Debt to Juice Your Investment Strategy, Good Debt: The 5 Best Reasons to Borrow Money, How to Create Your Own Loan Amortization Calculator, A Full Breakdown of Savings Accounts to Help You Find the Best Rates, Money Market Accounts & How to Find the Best Rates, Your Guide to CD Accounts and Finding the Best Rates, How to Find the Right Checking Account for You, How to Avoid Paying Bank Fees Once and For All, 7 Ways to Hack Proof Your Online Bank Account, How To Protect Your Assets When Your Bank Fails.