An oil refinery has decided to purchase some new drilling equipment for $550,000. The equipment will be kept for 10 years before being sold. The estimated SV for depreciation purposes is to be $25,000. Use this information to solve, Using the SL method, the annual depreciation on the equipment is(a) $50,000 (b) $51,500 (c) $52,500 (d) $55,000.
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.
An oil refinery has decided to purchase some new drilling equipment for $550,000. The equipment will be kept for 10 years before being sold. The estimated SV for
(a) $50,000 (b) $51,500 (c) $52,500 (d) $55,000.
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