How to Depreciate a Lawn Tractor

Straight-line depreciation allocates a lawn tractor's cost over its useful life.

Depreciation allocates an asset's cost over its useful life for financial reporting purposes rather than allocating the entire cost at the time of purchase. You can depreciate your company's equipment, such as a lawn tractor, using the straight-line depreciation method, which distributes an equal amount of the asset's cost to each year of its expected life. The amount of annual depreciation represents an annual operating expense, which is a cost related to your normal business operations and reduces the value of the asset on your accounting records.

Instructions

1. Subtract the value you expect the lawn tractor to be worth at the end of its useful life from the tractor's acquisition cost. For example, if you paid $20,000 to acquire the tractor and expect it to be worth $2,000 at the end of its life, subtract $2,000 from $20,000. This equals $18,000.

2. Divide your result by the number of years you expect the asset to be in service to determine its annual depreciation expense. For example, divide $18,000 by an expected 10-year useful life. This equals $1,800 in annual depreciation expense.

3. Add the tractor's annual depreciation expense to the annual depreciation expense of your other equipment assets, and report the total amount at the end of each year in the operating expenses section of your income statement. Report this depreciation annually during the tractor's useful life. For example, add $1,800 in the tractor's annual depreciation expense to $5,000 in annual depreciation expense from other assets, which equals $6,800 in total annual depreciation expense. Report this amount in the operating expenses section of your income statement.

4. Subtract your total annual depreciation expense from the total value of your lawn tractor and your other equipment assets, and report the new amount in the property, plant and equipment section of your balance sheet at the end of each year. For example, if the total value of your lawn tractor and other equipment assets is $50,000, subtract $6,800 in annual depreciation expense from $50,000, which equals $43,200. Report this amount at the end of the year on your balance sheet. Continue to reduce this amount by the amount of annual depreciation expense in subsequent years.

References

• Principles of Accounting; Chapter 10: Property, Plant and Equipment; Larry Walther; 2010
• Jacksonville State University: Depreciation Calculations