A small lumber company bought a tract of timber for $35,000, of which $5000 was the land’s value and $30,000 was the value of the estimated 1.5 million board-feet of standing timber. The first year, the company cut 100,000 board-feet of standing timber. What was the year’s depletion allowance?
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 small lumber company bought a tract of timber for $35,000, of which $5000 was the land’s value and $30,000 was the value of the estimated 1.5 million board-feet of standing timber. The first year, the company cut 100,000 board-feet of standing timber. What was the year’s depletion allowance?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
