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hi mike
when using residual value to do you subtract depreciation from the remaining cost or from original cost
for example
cost for machine is $80000 residual is $10000 depreciation is 5years
work out : is it 80000-10000=70000/5=14000
when finding the reminding is 80000-14000=$66000 or $56000Residual value is used in order to calculate how much we need to depreciate that asset over its estimated useful life
In the example that you have given, $70,000 needs to be depreciated over 5 years = $14,000 each year
So, at the end of year 1, $14,000 has been depreciated and the cost was $80,000 so the net book value is $66,000
At the end of year 2 a further $14,000 is depreciated. Cost is still $80,000 and depreciation is now $28,000 so net book value is now $52,000
Then it’s $38,000
Then $24,000
Then $10,000 and it’s going to be sold right now!
OK?
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