A machine cost $900,000 on April 1, 2020. Its estimated salvage value is $90,000 and its expected life is eight years. Instructions (1) Calculate the depreciation expense (to the nearest dollar) by each of the following methods, showing the amounts used. (a) Straight-line for 2020 (b) Double-declining balance for 2021 (c) Sum-of-the-years'-digits for 2021. (Please explain in detail how to do this method please) (2) Which method would result in the smallest income amount for 2021?
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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