A company purchased a piece of equipment for $30,000 on January 1, 2015. It estimates a residual value of $4,000 and a useful life of 5 years and it uses the straight-line method of depreciation. On January 1, 2017, management estimates the remaining useful life to be 4 years and the new residual value to be $3,000. What is the new annual depreciation expense as of 2017?
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 purchased a piece of equipment for $30,000 on January 1, 2015. It estimates a residual value of $4,000 and a useful life of 5 years and it uses the straight-line method of
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