What depreciation expense can be shown in the following case:
A company's annual accounting period ends on December 31. During the current year a depreciable asset which cost $24,000 was purchased on October 1. The asset has a $1,000 estimated salvage value. The company uses straight-line depreciation and expects the asset to have a 6-year life. What is the total depreciation expense for the current year?
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The cost of the asset is $24000. Its salvage value is $1000. As the company uses the straight line method for calculating depreciation, the deprecation expense every year is the asset cost minus the salvage value divided by the useful life span of the asset. Here the asset's useful life span is 6 years.
So we have yearly depreciation as ($24000 - $1000)/6
But the asset has only been bought in October, so the depreciation expense can be shown for three months. This gives the depreciation expense as 3833.33*(3/12)
The correct option is option b, the depreciation expense that can be shown at the end of the accounting period on December 31 is $958.33
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