17,112 ● Cost of old machine (4-year life, $1,860 salvage value) 21,700 ● Accumulated depreciation—old machine (straight-line) 9,920 ● Secondhand fair value of old machine 8,308
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Marin Inc. purchased a commercial grade soft-serve ice cream machine on September 30, 2017. Marin traded in its existing machine and paid cash in the transaction. The details of the transaction are as follows:
| ● | List price of new freezer | $25,730 | ||
| ● | Cash paid | 17,112 | ||
| ● | Cost of old machine (4-year life, $1,860 salvage value) | 21,700 | ||
| ● | 9,920 | |||
| ● | Secondhand fair value of old machine | 8,308 |
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