Depreciation Method
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.
E5A. On January 13, 2013, Precision Oil Company purchased a drilling truck for
$90,000. Precision expects the truck to last five years or 200,000 miles, with an
estimated residual value of $15,000 at the end of that time. During 2014, the truck is
driven 48,000 miles. Precision’s year end is December 31. Compute the depreciation
for 2014 under each of the following methods: (1) straight-line, (2) production, and
(3) double-declining-balance. Using the amount computed in (3), prepare the
entry
Truck account would appear on the
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