A company purchased a delivery van on October 1 of the current year at a cost of $40,000.  The van is expected to last 6 years and has a salvage value of $2,200. The company's annual accounting period ends on December 31.   1. What is the depreciation expense for the first year, assuming the straight-line method is used?   Cost Less: Salvage value Depreciable cost   Year 1 depreciation -------------------------------->   Show calculation:       2. What is the book value of the van at the end of the first year?   Cost Less: Accumulated depreciation Book value

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Depreciation Methods

The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.

Depreciation Accounting

In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.