Assume that the total cost of a project is $570,000 and that it is fully depreciable using a straight-line method over 6 years. There is also a total working capital need of $75,000, and the terminal value is $0. Given only this information, what is depreciation in Year 1?

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Business

Shania

2 May, 14:23

Assume that the total cost of a project is $570,000 and that it is fully depreciable using a straight-line method over 6 years. There is also a total working capital need of $75,000, and the terminal value is $0. Given only this information, what is depreciation in Year 1?

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Tara Orozco · Answer 1

So the depreciation in year 1 is $95,000

Explanation:

Depreciation is the accounting method that is used to allocate cost of an asset over its useful life. It is assumed that an asset losses values over a period and the salvage or terminal value is the value of the good after its useful life has ended.

Straight line method of depreciation assumes equal allocation of depreciation expense over the useful life of an asset.

In the given the asset value is $570,000 and the terminal value is $0

Using the formula

Depreciation = (Value of asset - Salvage value) / Number of useful years

Depreciation = (570,000-0) / 6

Depreciation = $95,000 paid equally for 6 years

So the depreciation in year 1 is $95,000