Q2/ A company is evaluating an investment. The company uses the straight-line method of depreciation. Use the following information to compute the accounting rate of return. Show your calculations and round to one decimal place. Project Investment SR875,000| Residual value Operating income: Year 1 120,000 Year 2 120,000 Year 3 120,000 Year 4 120,000 Year 5 120,000
Q2/ A company is evaluating an investment. The company uses the straight-line method of depreciation. Use the following information to compute the accounting rate of return. Show your calculations and round to one decimal place. Project Investment SR875,000| Residual value Operating income: Year 1 120,000 Year 2 120,000 Year 3 120,000 Year 4 120,000 Year 5 120,000
Chapter6: Investing And Financing Activities
Section: Chapter Questions
Problem 1.4C
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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