Question

Complete the formula by filling the correct option in the numerator:

Rate of depreciation = ____________________________ * 100
Acquisition cost

• A. Annual depreciation cost
• B. Cost of asset
• C. Asset - Liabilities
• D. Net Asset

Answer 1

The correct option is A Annual depreciation cost

Annual Depreciation cost.

There are various methods to calculate depreciation, one of the most commonly used methods is the straight-line method, keeping this method in mind the above formula to calculate depreciation rate (annual) has been derived.

Example

Cost of machine = 10,000, Scrap value of machine = 1,000

Machine’s estimated useful life = 5 years

Annual Depreciation cost = (Cost of Asset – Net Scrap Value)/Useful Life

Annual Depreciation cost = (10,000-1,000)/5

= 9,000/5

= 1,800 per year

Rate % = (Annual Depreciation cost/ Cost of Asset) * 100

(Annual Depreciation in %ge) = (1,800/10,000) * 100 = 18%