a) Sum-of-the-years' method for 20x2 (1/1/x2 ~ 12/31/x2) b) Double-declining balance method for 20x3 (1/1/x3 ~ 12/31/x3) c) Activity method (units of output) for 20x1 (12/1/x1 ~ 12/31/x1) d) Straight-line for 20x1(12/1/x1 ~ 12/31/x1)
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.
Denver Co. purchased equipment for $225,000 on 12/1/x1. It is estimated that the equipment will have a useful life of 7 years and a residual value of $5,000. Estimated production is 30,000 units and estimated working hours are 25,000. During the month of December in 20x1, Denver used the equipment for 515 hours and the equipment produced 1,200 units.
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