At the beginning of 2019, Robotics Inc. acquired a manufacturing facility for $13.4 million. $10.4 million of the purchase price was allocated to the building. Depreciation for 2019 and 2020 was calculated using the straight-line method, a 25-year useful life, and a $2.4 million residual value. Assume that 2019 depreciation was incorrectly recorded as $32,000. This error was discovered in 2021. Required 1. Record the journal entry needed in 2021 to correct the error. 2. What is depreciation on the building for 2021 assuming no change in estimate of useful life or residual 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.
At the beginning of 2019, Robotics Inc. acquired a manufacturing facility for $13.4 million. $10.4 million of the purchase price was allocated to the building.
Required
1. Record the
2. What is depreciation on the building for 2021 assuming no change in estimate of useful life or residual value?
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