Brioche Incorporated is a private company that uses IFRS for financial reporting. The company acquired equipment for $107,000 on 1 January 20X1. At acquisition, Brioche estimated the equipment would have a useful life of 10 years. The residual value was estimated at $7,700. Brioche Incorporated recorded depreciation on the equipment for 4 years using straight-line depreciation. During this period, the equipment had been used with less intensity than anticipated due to unforeseen cash flow which allowed for the purchase of additional equipment which was used to share the load. At the 20X5 reporting date, before recording the annual adjusting entry for depreciation expense, Brioche re-evaluated the estimates concerning this equipment and determined that the original useful life should have been estimated at 12 years and that the residual value is actually $9,800.
Brioche Incorporated is a private company that uses IFRS for financial reporting. The company acquired equipment for $107,000 on 1 January 20X1. At acquisition, Brioche estimated the equipment would have a useful life of 10 years. The residual value was estimated at $7,700. Brioche Incorporated recorded depreciation on the equipment for 4 years using straight-line depreciation. During this period, the equipment had been used with less intensity than anticipated due to unforeseen cash flow which allowed for the purchase of additional equipment which was used to share the load. At the 20X5 reporting date, before recording the annual adjusting entry for depreciation expense, Brioche re-evaluated the estimates concerning this equipment and determined that the original useful life should have been estimated at 12 years and that the residual value is actually $9,800.
Chapter1: Financial Statements And Business Decisions
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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.
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