A company purchased an air conditioning system for $10200. The shipping charges on the system were $875, and the setup cost were $1250. The system is expected to last for five years and has a residual value of $2000. If you use the straight-line method to calculate the depreciation for this air conditioning system what would be the annual depreciation?
investment = 12325
residual = 2000
depreciate 10325 over 5 years SL
10325/5 = 2065 per year
To calculate the annual depreciation using the straight-line method, you need to determine the depreciable cost of the air conditioning system first.
The depreciable cost is the initial cost of the asset minus its residual value. In this case, the initial cost is $10,200 and the residual value is $2,000. Therefore, the depreciable cost is $10,200 - $2,000 = $8,200.
Next, you divide the depreciable cost by the useful life of the asset to get the annual depreciation expense. In this case, the useful life is 5 years.
Annual depreciation = Depreciable cost / Useful life
Annual depreciation = $8,200 / 5
Annual depreciation = $1,640
Therefore, the annual depreciation for this air conditioning system using the straight-line method is $1,640.