91Ó°ÊÓ

Depreciation is considered an expense in the book of account for the decrease in the asset’s value due to the wear and tear of the asset. Depreciation can be computed using a different method, but most companies follow straight-line depreciation.

Depreciation expense = $2,500

Working Notes:

Calculating depreciation expense

$\begin{array}{rcl}\text{Depreciation}\text{expense}& =& \left(\text{Cost} \text{of}\text{computer}-\text{Salvage}\text{value}\right)×\frac{\text{Number} \text{of}\text{year}}{\text{Useful}\text{life}}×\frac{\text{Number}\text{of}\text{month}}{\text{Total}\text{month}\text{in}\text{year}}\\ & =& \left(\$31,000-\$1,000\right)×\frac{1}{10}×\frac{10}{12}\\ & =& \$30,000×\frac{1}{10}×\frac{10}{12}\\ & =& \$2,500\end{array}$

Depreciation expense = $3,100

Working notes:

Calculating depreciation expense

$\begin{array}{rcl}\text{Depreciation} \text{expense}& =& \text{Cost}\text{of}\text{computer}×\frac{\text{Number} \text{of}\text{year}}{\text{Useful}\text{life}}×\frac{\text{Number}\text{of}\text{month}}{\text{Total}\text{month}\text{in}\text{a}\text{year}}\\ & =& \$31,000×\frac{1}{5}×\frac{6}{12}\\ & =& \$3,100\\ & & \end{array}$

Depreciation expense = $5,167

Working notes:

Calculating depreciation expense

$\begin{array}{rcl}\text{Depreciation}\text{expense}& =& \text{Cost}\text{of}\text{computer}×\left(\frac{\text{Number}\text{of}\text{year}}{\text{Useful}\text{life}}×2×100\right)×\frac{\text{Number} \text{of}\text{month}}{\text{Total}\text{month}\text{in}\text{a}\text{year}}\\ & =& \$31,000×\left(\frac{1}{10}×2×100\right)×\frac{10}{12}\\ & =& \$31,000×20\%×\frac{10}{12}\\ & =& \$5,167\end{array}$

Depreciation expense = $6,200

Working notes:

Calculating depreciation expense

$\begin{array}{rcl}\text{Depreciation}\text{expense}& =& \text{Cost}\text{of}\text{computer}×\left(\frac{\text{Number}\text{of}\text{year}}{\text{Useful}\text{life}}×2×100\right)×\frac{\text{Number} \text{of}\text{month}}{\text{Total}\text{month}\text{in}\text{a}\text{year}}\\ & =& \$31,000×\left(\frac{1}{5}×2×100\right)×\frac{1}{12}\\ & =& \$31,000×40\%×\frac{1}{12}\\ & =& \$6,200\end{array}$

There will be differences due to the following factors:

1. For tax purposes, a half-year convention is used.
2. There is no correlation between anticipated use life and tax life.
3. The tax system ignores salvage value.