Asset Type Truck Lathe Building Item Initial cost $45,000 $25,000 $800,000 50 years 39 years Book life 12 years 200,000 miles 5 years MACRS class Salvage value Book depreciation 7 years $3,000 $2,000 $100,000 DDB Unit production (UP) SL
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.
A manufacturing company has purchased three assets: The truck was
truck was 22,000 miles and 25,000 miles during the first two years, respectively.
(a) Calculate the book depreciation for each asset for the first two years.
(b) If the lathe is to be depreciated over the early portion of its life by the DOB method and then by a switch to the SL method for the remainder of its life. when should the switch occur'?
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