11.1 Depreciation

Depreciation is the decline in value of an item over time. E.g. your car worth today may not be worth the same in a year time. The value, after taking account of depreciation, is called salvage value. There are two methods of depreciation; straight-line and declining balance. Straight-line depreciation reduces the value of item by constant amount every year.

Example 1

I bought a car for $25,000 which depreciates at 20% per year. What is its salvage value after 4 years and how much it depreciated?

Example 2

Continuing with same example of my car bought for $25,000 and depreciating at 20%, which one of the following charts best shows salvage value of this car over time?

The following is the type of questions you can expect in exam:

– 11.1.1 Exam Question Type 1

Study notes of this section and other resources can be accessed here:

– 11.1.2 Study Notes & Resources