A company acquired a new machine on April 2016 cost: $55000 with $5000 salvage value with an estimated useful life of 5 years. For tax purposes this machinery classified as a 5-years property. Compute the depreciation under three methods for the first three years (2016, 2017 and 2018) by using half year convention for 2016 in each method. 1.Straight line, 2. Double-Declining-balance, 3. MACRS Comments on significant difference and similarities for different purposes.
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.
A company acquired a new machine on April 2016 cost: $55000 with $5000 salvage value with an estimated useful life of 5 years. For tax purposes this machinery classified as a 5-years property.
- Compute the
depreciation under three methods for the first three years (2016, 2017 and 2018) by using half year convention for 2016 in each method.
1.Straight line, 2. Double-Declining-balance, 3. MACRS
- Comments on significant difference and similarities for different purposes.
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