A truck was purchased for P1,200,000 and it was estimated to have a P200,000 salvage value at the end of its useful life. Monthly depreciation expense of P20,000 was recorded using the straight-line method. The annual depreciation rate is.
Question
A truck was purchased for P1,200,000 and it was estimated to have a P200,000 salvage value at the end of its useful life. Monthly depreciation expense of P20,000 was recorded using the straight-line method. The annual depreciation rate is.
Solution
To calculate the annual depreciation rate using the straight-line method, follow these steps:
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Determine the depreciable base: This is the original cost of the asset minus the salvage value. In this case, P1,200,000 - P200,000 = P1,000,000.
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Determine the annual depreciation expense: Since the monthly depreciation expense is P20,000, multiply this by 12 (the number of months in a year) to get the annual depreciation expense. P20,000 * 12 = P240,000.
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Calculate the annual depreciation rate: This is the annual depreciation expense divided by the depreciable base. So, P240,000 / P1,000,000 = 0.24 or 24%.
Therefore, the annual depreciation rate is 24%.
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