A lumber company purchases and installs a wood chipper for $200,000. The chipper is classified as MACRS 7-year property. The chipper’s useful life is 10 years. The estimated salvage value at the end of 10 years is $25,000. Using MACRS depreciation, compute the first-year depreciation. a. $17,500.00 b. $20,000.00 c. $25,007.50 d. $28,580.00.
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 lumber company purchases and installs a wood chipper for $200,000. The chipper is classified as MACRS 7-year property. The chipper’s useful life is 10 years. The estimated salvage value at the end of 10 years is $25,000. Using MACRS
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