ABC Engineering Company has bought an equipment for RO 100,000 with an estimated useful life of 4 years. Accounting Manager, is responsible to calculate the depreciation to record in the books of accounting. He is confused in selecting the method of depreciation like WDV or Straight-line method. He came to know that the expected scrap value at the end of its useful life is RO 20,000. Why should the company record depreciation in the books of accounts? What would be book value of the machinery at the end 4 years using WDV method and Straight-line method. comment on the depreciation method that is more suitable for the accounting purpose
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.
ABC Engineering Company has bought an equipment for RO 100,000 with an estimated useful life of 4 years.
- Why should the company record depreciation in the books of accounts?
- What would be book value of the machinery at the end 4 years using WDV method and Straight-line method.
- comment on the depreciation method that is more suitable for the accounting purpose
- What is the scrap(salvage) value of the machine? Discuss
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