Bugle Company’s property, plant, and equipment and related accumulated depreciation accounts had the following balances at December 31, 2006: Class of PPE Cost Accum. Depreciation Lease improvements 6,630,000 3,315,000 Class of PPE Depreciation method Useful Life Lease improvements Straight-line 8 years Bugle computes depreciation to the nearest month. The salvage values of the depreciable assets are considered immaterial. Transactions during 2007 and other information are described below: 1. The lease hold improvements were completed on December 31, 2003, and had an estimated useful life of 8 years. The related lease, which would have terminated on December 31, 2009, was renewable for an additional 4-year term. On April 30, 2007, Bugle exercised the renewal option. Based on the preceding information, calculate the 2007 depreciation expense of lease improvements.
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.
Bugle Company’s property, plant, and equipment and related
Class of PPE Cost Accum. Depreciation
Lease improvements 6,630,000 3,315,000
Class of PPE Depreciation method Useful Life
Lease improvements Straight-line 8 years
Bugle computes depreciation to the nearest month. The salvage values of the
Transactions during 2007 and other information are described below:
1. The lease hold improvements were completed on December 31, 2003, and had an estimated useful life of 8 years. The related lease, which would have terminated on December 31, 2009, was renewable for an additional 4-year term. On April 30, 2007, Bugle exercised the renewal option.
Based on the preceding information, calculate the 2007 depreciation expense of lease improvements.
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