A machine that cost $84,000 has an estimated residual value of $21,000 and an estimated useful life of 21,000 machine hours. The company uses units-of-production depreciation and ran the machine 4,000 hours in year 1, 6,000 hours in year 2, and 8,000 hours in year 3. Required: Calculate its book value at the end of year 3.
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 machine that cost $84,000 has an estimated residual value of $21,000 and an estimated useful life of 21,000 machine hours. The company uses units-of-production
Required:
Calculate its book value at the end of year 3.
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