A firm is considering purchasing two assets. Asset L will have a useful life of 15 years and cost $4 million; it will have installation costs of $750,000 but no salvage or residual value. Asset S will have a useful life of 5 years and cost $2 million; it will have installation costs of $500,000 and a salvage or residual value of $400,000. Which asset will have a greater annual straightminus−line depreciation?

Asset S has a greater Straight Line Depreciation.

Explanation:

Straight Line Depreciation amount  = (Capitalised Cost - Salvage Value) / Life of the asset  

Capitalised Cost  = Purchase cost + Installation cost  

For Asset L,  

Asset Life = 15 years  

Salvage/residual value = $0.00  

So,  

Straight Line Depreciation of Asset L  

So, Depreciation Amount for Asset L is $316,666.67

For Asset S,  

Asset Life = 5 years  

Salvage/Residual  Value = $400,000.00  

So,  

Straight Line Depreciation of Asset S  

So, Depreciation Amount for Asset S is $420,000.00

So, Asset S has a greater Straight Line Depreciation.

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