The accounting rate of return requires the use of the accrual basis of accounting and therefore, the annual depreciation must be caluclated. How do you calculate the annual depreciation?

Question

Emerson Wu

Business

22 October, 02:17

The accounting rate of return requires the use of the accrual basis of accounting and therefore, the annual depreciation must be caluclated. How do you calculate the annual depreciation?

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Answers (1)

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Dominic Robertson · Answer 1

Annual depreciation is calculated by dividing the cost of an asset over its useful life.

Explanation:

For example, if a company is looking to invest in new machinery which costs USD 300,000 and the machinery is expected to have a useful life of 10 years with no scap/salvage value, then the annual depreciation would be computed as:

USD 300,000/10 = USD 30,000 depreciation expense per year.