We have a machine costing 1,00,000 with scrap value 10,000 and life 9 years. I don't understand how to get the yearly depreciation amount and rate.
Under the straight line method (also called fixed instalment method), depreciation is the same amount every year. The formula is: Depreciation = (Cost minus Scrap value) divided by Useful life. Here that is (1,00,000 minus 10,000) divided by 9 = 90,000 divided by 9 = 10,000 per year. To express it as a rate, divide annual depreciation by the original cost and multiply by 100: (10,000 / 1,00,000) into 100 = 10 percent per annum on original cost. So each year you reduce the asset's book value by 10,000: after year one it is 90,000, after year two 80,000, and so on until it reaches the scrap value of 10,000 at the end of nine years. Remember, in SLM the rate is always applied on the original cost, not the reducing balance.
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