To determine the annual depreciation of a house utilizing the straight-line method, you start by identifying the initial cost of the house and its economic life. In this case, the house costs $300,000 and has a 50-year economic life.
Using the straight-line method, the calculation for annual depreciation is straightforward:
Identify the total cost of the asset: Here, it is $300,000.
Identify the economic life: In this example, the economic life is 50 years.
Calculate annual depreciation: This is done by dividing the total cost by the economic life.
So, the calculation would be:
[
\text{Annual Depreciation} = \frac{\text{Total Cost}}{\text{Economic Life}} = \frac{300,000}{50}
]
[
\text{Annual Depreciation} = 6,000
]
This calculation indicates that each year, the house depreciates in value by $6,000. The straight-line method is commonly used because it distributes the cost evenly across the useful life of the asset, reflecting a consistent yearly depreciation that is easy to calculate and understand.
Therefore, the correct amount by