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I have noticed that in many exercises when there is a difference between book value and...

I have noticed that in many exercises when there is a difference between book value and fair market value , we calculate the percentage of discount at first in order to calculate the depreciation expenses

For example, let's think about a company which buys an asset from other company

The book value of machine is 30.000 USD

The fair value (after financial expert statement) is 35.000USD

How can we calculate the depreciation expenses for 10 years (we assume salvage value is zero (0)] by using the percentage of discount and why does it happen?

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Answer #1

Lets us understand fair value

Fair value is the price at which asset is exchange between knowledgeable parties at arm's lenght transcation.

book value generally means cost at which asset is acuquired.

so for depreciation book value is always used to calculate depreciation.

so,

book value of machine is 30.000 USD and machine life is 10 years

here i m using SLM to calculate depreciation

as salvage value is zero.

depreciation amount = book value - salvage value life of asset

so , 30.000 USD - 0 10 years = 3.000 USD.

now book value reduced to 27.000 USD as we have subtraact the depricaion amout.

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