A firm owns an equipment purchased at the beginning of the 2019 fiscal year at the price of $50,000. The equipment has 3 years remaining life, and is expected to be sold for $8000 at the end of it life (the annual interest rate is 5%). (a) Calculate the annual depreciation, to 2 decimal places, in the 2019, 2020 and 2021 fiscal years using the straight line method. (b) Calculate the annual depreciation, to 2 decimal places, in the 2019, 2020 and 2021 fiscal years using the reducing balance method. (c) Which method above gives less depreciation in the 2019 fiscal year? and which method above gives less depreciation in the 2021 fiscal year? Briefly explain why the answers for these two fiscal years are different (or are not different).

A firm owns an equipment purchased at the beginning of the 2019 fiscal year at the price of $50,000. The equipment has 3 years remaining life, and is expected to be sold for $8000 at the end of it life (the annual interest rate is 5%). (a) Calculate the annual depreciation, to 2 decimal places, in the 2019, 2020 and 2021 fiscal years using the straight line method. (b) Calculate the annual depreciation, to 2 decimal places, in the 2019, 2020 and 2021 fiscal years using the reducing balance method. (c) Which method above gives less depreciation in the 2019 fiscal year? and which method above gives less depreciation in the 2021 fiscal year? Briefly explain why the answers for these two fiscal years are different (or are not different).

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Description: A firm owns an equipment purchased at the beginning of the 2019 fiscal year at the price of$50,000. The equipment has 3 years remaining life, and is expected to be sold for $8000 at the endof it life (the annual interest rate is 5%).(a) Calculate th

FINANCIAL ACCOUNTING

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Chapter1: Financial Statements And Business Decisions

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Concept explainers

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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Question

A firm owns an equipment purchased at the beginning of the 2019 fiscal year at the price of
$50,000. The equipment has 3 years remaining life, and is expected to be sold for $8000 at the end
of it life (the annual interest rate is 5%).
(a) Calculate the annual depreciation, to 2 decimal places, in the 2019, 2020 and 2021 fiscal years
using the straight line method.
(b) Calculate the annual depreciation, to 2 decimal places, in the 2019, 2020 and 2021 fiscal years
using the reducing balance method.
(c) Which method above gives less depreciation in the 2019 fiscal year? and which method above
gives less depreciation in the 2021 fiscal year? Briefly explain why the answers for these two
fiscal years are different (or are not different).

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