Using straight-line depreciation, what is the service life and how does it affect depreciation for a van purchased for 28,000 with an expected life of 10 years?

Using straight-line depreciation, what is the service life and how does it affect depreciation for a van purchased for 28,000 with an expected life of 10 years?

• A. The service life of the van is 10 years, and it affects depreciation by determining the annual depreciation expense based on its cost and salvage life.
• B. The service life of the van is 10 years, and it affects depreciation by determining the cost of the van that will be depreciated.
• C. The service life of the van is 10 years, and it affects depreciation by determining the salvage value of the van at the end of its service life.
• D. The service life of the van is 10 years, and it affects depreciation by determining the market value of the van at any given time.

Answer: (A)

Straight-line depreciation spreads the cost evenly over the asset’s useful life. The service life of 10 years tells you the period over which depreciation is recorded, so the annual depreciation expense is (cost minus salvage value) divided by 10. With a van costing 28,000 and an expected life of 10 years, you depreciate (28,000 − salvage value) each year. If salvage value isn’t provided, it’s common to assume zero, giving 2,800 per year. This reflects how depreciation depends on both the initial cost and the estimated value at end of life, spread over the service life. The other options don’t capture that depreciation uses cost minus salvage value and the 10-year period to determine annual expense, or they misstate the role of salvage value or market value.

Straight-line depreciation spreads the cost evenly over the asset’s useful life. The service life of 10 years tells you the period over which depreciation is recorded, so the annual depreciation expense is (cost minus salvage value) divided by 10. With a van costing 28,000 and an expected life of 10 years, you depreciate (28,000 − salvage value) each year. If salvage value isn’t provided, it’s common to assume zero, giving 2,800 per year. This reflects how depreciation depends on both the initial cost and the estimated value at end of life, spread over the service life. The other options don’t capture that depreciation uses cost minus salvage value and the 10-year period to determine annual expense, or they misstate the role of salvage value or market value.