Computing depreciation—three methods Crispy Fried Chicken bought equipment on January 2, 2018, for $33,000. The equipment was expected to remain in service for four years and to operate for 6,750 hours. At the end of the equipment’s useful life, Crispy’s estimates that its residual value will be $6, 000. The equipment operated for 675 hours the first year, 2,025 hours the second year, 2,700 hours the third year, and 1,350 hours the fourth year. Requirements Prepare a schedule of depredation expense, accumulated depredation, and book value per year for the equipment under the three depreciation methods: straight-line, units-of-production, and double-declining-balance. Show your computations. Note: Three depredation schedules must be prepared. Which method tracks the wear and tear on the equipment most closely?
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.
Computing
Crispy Fried Chicken bought equipment on January 2, 2018, for $33,000. The equipment was expected to remain in service for four years and to operate for 6,750 hours. At the end of the equipment’s useful life, Crispy’s estimates that its residual value will be $6, 000. The equipment operated for 675 hours the first year, 2,025 hours the second year, 2,700 hours the third year, and 1,350 hours the fourth year.
Requirements
- Prepare a schedule of depredation expense, accumulated depredation, and book value per year for the equipment under the three depreciation methods: straight-line, units-of-production, and double-declining-balance. Show your computations. Note: Three depredation schedules must be prepared.
- Which method tracks the wear and tear on the equipment most closely?
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