Exactly 10 years ago, Boyditch Professional Associates purchased $100,000 in depreciable assets with an estimated salvage of $10,000. For tax depreciation the SL method with n = 10 years was used, but for book depreciation, Boyditch applied the DDB method with n = 7 years and neglected the salvage estimate. The company sold the assets today for $12,500.a. Compare this sales amount with the book values using SL and DDB methods.b. If a salvage of $12,500 had been estimated exactly 10 years ago, determine the depreciation for each method in year 10.
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.
Exactly 10 years ago, Boyditch Professional Associates purchased $100,000 in
a. Compare this sales amount with the book values using SL and DDB methods.
b. If a salvage of $12,500 had been estimated exactly 10 years ago, determine the depreciation for each method in year 10.
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