Question 1

What is straight-line depreciation?

Accepted Answer

Straight-line depreciation spreads the cost of an asset evenly over its useful life. Annual depreciation = (Cost - Salvage Value) / Useful Life. For example, a $50,000 machine with a $5,000 salvage value and 5-year life depreciates $9,000 per year. It is the simplest and most commonly used method for financial reporting.

Question 2

What is double declining balance depreciation?

Accepted Answer

Double declining balance (DDB) is an accelerated method that depreciates more in early years. The rate is 2 / useful life, applied to the remaining book value each year. For a 5-year asset, the rate is 40% per year. DDB switches to straight-line when straight-line gives a higher deduction.

Question 3

What is MACRS depreciation?

Accepted Answer

MACRS (Modified Accelerated Cost Recovery System) is the depreciation method required by the IRS for US tax purposes. It uses predetermined recovery periods and rates based on asset class. Most business equipment uses 5 or 7-year MACRS. MACRS typically provides larger deductions in early years than book depreciation.

Question 4

What is salvage value?

Accepted Answer

Salvage value (residual value) is the estimated value of an asset at the end of its useful life. It reduces the depreciable base -- you only depreciate the difference between cost and salvage value. If an asset has no expected resale value, salvage value is $0 and the full cost is depreciated.

Year	Depreciation	Accumulated	Book Value
1	($9,000.00)	$9,000	$41,000
2	($9,000.00)	$18,000	$32,000
3	($9,000.00)	$27,000	$23,000
4	($9,000.00)	$36,000	$14,000
5	($9,000.00)	$45,000	$5,000

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