A firm is considering purchasing two assets.Asset A will have a useful life of 15 years and cost $3 million;it will have installation costs of $400,000 but no salvage or residual value.Asset B will have a useful life of 6 years and cost $1.3 million;it will have installation costs of $180,000 and a salvage or residual value of $300,000.Which asset will have a greater annual straight-line depreciation?
A)Asset A has $30,000 more in depreciation per year.
B)Asset A has $40,000 more in depreciation per year.
C)Asset B has $30,000 more in depreciation per year.
D)Asset B has $40,000 more in depreciation per year.

Question

Quizplus · Accepted Answer

The annual straight-line depreciation is calculated by subtracting the salvage value (if any) from the cost, and then dividing by the useful life in years.

For Asset A: 
Depreciation = ($3,000,000 + $400,000 - $0) / 15 years = $226,667 per year

For Asset B: 
Depreciation = ($1,300,000 + $180,000 - $300,000) / 6 years = $258,333 per year

Therefore, Asset A has a greater annual straight-line depreciation by $31,666 per year which is approximately $30,000.

The answer is A) Asset A has $30,000 more in depreciation per year.

A Firm Is Considering Purchasing Two Assets