delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van follow: Original cost Annual operating cost Accumulated depreciation Current salvage value of the existing van Remaining life Salvage value in 10 years Annual depreciation Existing van $100,000 $ 35,000 $ 60,000 $ 45,000 10 years $0 $ 4,000 New van $180,000 $ 20,000 10 years $0 $ 18,000
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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