A-Determine the depreciation expense and the cost of timber sold related to depletion
A-Determine the depreciation expense and the cost of timber sold related to depletion
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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.
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Concord Company owns 9,000 acres of timberland purchased in 2009 at a cost of $1,470 per acre. At the time of purchase, the land without the timber was valued at $420 per acre. In 2010, Concord built fire lanes and roads, with a life of 30 years, at a cost of $88,200. Every year, Concord sprays to prevent disease at a cost of $3,150 per year and spends $7,350 to maintain the fire lanes and roads. During 2011, Concord selectively logged and sold 735,000 board feet of timber, of the estimated 3,675,000 board feet. In 2012, Concord planted new seedlings to replace the trees cut at a cost of $105,000.
A-Determine the depreciation expense and the cost of timber sold related to depletion
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