A company purchased a piece of equipment for $30,000 on January 1, 2019. Management estimates salvage value of $3,000 and a useful life of five years. It uses the straight‐line method of depreciation. Where applicable, it applies the half‐year rule. On December 31, 2021 the equipment’s fair value is estimated to be $3,000. What is the impairment loss for 2021? $3,000 $5,400 $7,800 $10,800
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, 2019. Management estimates salvage value of $3,000 and a useful life of five years. It uses the straight‐line method of
$3,000
$5,400
$7,800
$10,800
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