Exercise 1 Malibu Limited acquired a building on 1 July 2012 at a cost of $800,000. The useful life of the building was estimated as 20 years with no residual value. Mailbu Limited use the straight line method of depreciation. The estimate of the useful life of the building was revised to 16 years from 30 June 2018. Required: Prepare journal entries for depreciation of the building for years ended 30 June 2018, and 2019 and state the carrying amount of the building at the end of each of the two reporting periods.

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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.