A warehouse that cost $170,000 with a residual value of $10,000 is being depreciated over 20 years. On January 1, 2015, an additional wing was constructed for $80,000. At the time of the construction, the warehouse was 15 years old. The estimated life of the wing, considered separately from the original warehouse, is 10 years, and $15,000 is its estimated residual value. Record these entries: The addition to the warehouse (cash was paid). One year's depreciation on the warehouse's addition on December 31, 2015. Depreciation on the original warehouse on December 31, 2015.
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.
Scenario 2:
A warehouse that cost $170,000 with a residual value of $10,000 is being
Record these entries:
- The addition to the warehouse (cash was paid).
- One year's depreciation on the warehouse's addition on December 31, 2015.
- Depreciation on the original warehouse on December 31, 2015.
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