Calculating Annual Depreciation Rate for a Truck
How can we calculate the annual depreciation rate for a truck?
Given the truck was purchased for $188,000 with a salvage value of $32,000 and a monthly depreciation expense of $3,900 using the straight-line method.
Calculating Annual Depreciation Rate for a Truck
To calculate the annual depreciation rate for the truck, we need to follow these steps:
Step 1:Calculating the annual depreciation expense by multiplying the monthly expense by 12 months.
Step 2:Determining the depreciable amount by subtracting the salvage value from the purchase price.
Step 3:Calculating the annual depreciation rate by dividing the annual depreciation expense by the depreciable amount.
When we purchase an asset like a truck, it depreciates over time due to wear and tear. Depreciation is a way to allocate the cost of the asset over its useful life. In this case, the truck was purchased for $188,000 and is estimated to have a salvage value of $32,000 at the end of its useful life.
The monthly depreciation expense recorded using the straight-line method is $3,900. To find the annual depreciation rate, we first calculate the annual depreciation expense by multiplying the monthly expense by 12:
Annual depreciation expense = $3,900 x 12 = $46,800
Next, we determine the depreciable amount, which is the purchase price minus the salvage value:
Depreciable amount = $188,000 - $32,000 = $156,000
Finally, we calculate the annual depreciation rate by dividing the annual depreciation expense by the depreciable amount and multiplying by 100%:
Annual depreciation rate = ($46,800 / $156,000) x 100% = 30.00%
Therefore, the annual depreciation rate for the truck using the straight-line method is 30.00%.