The Current Value of an Asset - Essay Example

At the end of a given period, an organization needs to adjust the asset on the accumulated depreciation. Organizations need to make such adjustments to provide an accurate position of the firm concerning assets.

To determine the depreciation expense of a given asset, an organization has to establish the initial cost of the asset, its book value, and the period taken for the value to depreciate from the cost to the book value. Nevertheless, if a firm knows the lifespan of an asset and the residual value, then calculations of depreciation of expense may be calculated. For instance, if a firm bought an asset for $50,000 and the expected lifespan and residual values are 10 years and $10,000 respectively, then the organization may use the straight-line method to calculate depreciation expense as $4,000. Therefore, even though an accurate stating of an organization’s financial position requires that the book or current value of an asset be established, it does not lead to a serious challenge in calculating the depreciation expense given the straight-line method (Finkler, 2010). The straight line concept can be used in such scenarios where the cost, residual value, and lifespan are required.

From the explanations, it is evident that the difficulty in determining the current value of an asset does not create a significant problem in determining the depreciation expense that should be charged for a year. Read More