Question

The formula for depreciable cost is

a. Initial cost + Residual value
b. Initial cost - Residual value
c. Initial cost - Accumulated depreciation
d. Depreciable cost = Initial cost

Answer 1

Depreciable cost is derived by subtracting the accumulated depreciation from the initial cost of the asset, representing the portion of value not yet expensed. This formula ensures accurate accounting for the remaining value of the asset. Learn more about depreciation in financial accounting. So, the correct option is c. Initial cost - Accumulated depreciation.

Step-by-step explanation:

Depreciable cost is a critical concept in accounting, serving as the basis for allocating the cost of a tangible asset over its useful life. The formula for depreciable cost is c. Initial cost - Accumulated depreciation. This means that the depreciable cost is determined by subtracting the total accumulated depreciation from the initial cost of the asset.

Accumulated depreciation represents the cumulative depreciation expenses recognized over time, reflecting the portion of the asset's value that has been systematically expensed to reflect wear, tear, and obsolescence. By subtracting accumulated depreciation from the initial cost, the formula arrives at the depreciable cost, which is the remaining value of the asset yet to be expensed.

This calculation is fundamental for financial reporting and taxation purposes, as it helps in spreading the cost of the asset over its estimated useful life. The depreciable cost is used to determine the annual depreciation expense, aiding businesses in accurately reflecting the decrease in the asset's value over time on their financial statements.

Answer 2

The formula for depreciable cost is the initial cost of an asset minus its residual value. This represents the total amount that can be depreciated over the asset's useful life. The example provided shows a depreciable cost calculation with an initial cost of $1000 and a residual value of $100, resulting in a depreciable cost of $900.

Step-by-step explanation:

The formula for depreciable cost is Initial cost - Residual value. Depreciable cost is the total amount of the asset cost that can be depreciated over time. This is the cost of the asset that is allocated as depreciation expense over the asset's useful life. To calculate it, you subtract the residual value (also known as salvage value) from the initial cost of the asset.

For example, if a company buys a piece of equipment for $1000 and expects to sell it for $100 at the end of its useful life, the depreciable cost would be:

Initial cost of the equipment ($1000) - Residual value ($100) = Depreciable cost ($900).