As the accountant of a manufacturing company, you have been asked to recommend a depreciation method that will be used in measuring and reporting all fixed assets of the company. With your vast knowledge in accounting principles and in compliances with generally accepted accounting standards, you came up with the following proposed methods for the approval of the management; Method I: Straight Line Method Method II: Written Down Value Method at 59% The company bought a machine for OMR 175,000 on January 1, 2019. The machine is expected to be useful for 4 years and has an estimated salvage value of OMR 5,000. Using method I Straight Line Method, compute the annual depreciation. 2. Complete the following table if straight line method is used; Year Depreciation Expense Accumulated Depreciation Book Value
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.
As the accountant of a manufacturing company, you have been asked to recommend a
Method I: Straight Line Method
Method II: Written Down Value Method at 59%
The company bought a machine for OMR 175,000 on January 1, 2019. The machine is expected to be useful for 4 years and has an estimated salvage value of OMR 5,000.
- Using method I Straight Line Method, compute the annual depreciation.
2. Complete the following table if straight line method is used;
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Year |
Depreciation Expense |
Accumulated Depreciation |
Book Value |
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3. Using Method II Written Down Value at 59% per annum. Complete the table below.
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Year |
Book Value (Beg) |
Depreciation at 59% p.a. |
Book Value (End) |
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1.
Calculate the depreciation under straight line method as follows:
Depreciation = (Cost of asset - salvage value) / Life of the asset
Depreciation = (170,000 - 5000) /4
Depreciation = 42,500
Therefore, the depreciation under straight line method is 42,500.
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