For financial reporting, Clinton Poultry Farms has used the declining-balance method of depreciation for conveyor equipment acquired at the beginning of 2018 for $2,970,000. Its useful life was estimated to be six years, with a $216,000 residual value. At the beginning of 2021, Clinton decides to change to the straight-line method. The effect of this change on depreciation for each year is as follows: ($ in thousands) Year Straight Line Declining Balance Difference 2018 $ 459 $ 990 $ 531 2019 459 660 201 2020 459 440 (19 ) $ 1,377 $ 2,090 $ 713 Required: 2. Prepare any 2021 journal entry related to the change.
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.
For financial reporting, Clinton Poultry Farms has used the declining-balance method of
| ($ in thousands) | |||||||||||||
| Year | Straight Line | Declining Balance | Difference | ||||||||||
| 2018 | $ | 459 | $ | 990 | $ | 531 | |||||||
| 2019 | 459 | 660 | 201 | ||||||||||
| 2020 | 459 | 440 | (19 | ) | |||||||||
| $ | 1,377 | $ | 2,090 | $ | 713 | ||||||||
Required:
2. Prepare any 2021
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