Green Grass Company purchased a tractor at a cost of $150,000 on January 1, 2013. The tractor has an estimated residual value of $30,000 and an estimated life of 8 years. At the end of two years of service, the company reevaluated the tractor’s useful life. Management extended the useful life an additional four years, but estimated that the tractor would have no residual value at the end of this time. If the company uses straight-line depreciation, what amount would be recorded as the depreciation expense each year, beginning with the third year? answer is 12,000 how do you get to this answer?
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.
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Green Grass Company purchased a tractor at a cost of $150,000 on January 1, 2013. The tractor has an estimated residual value of $30,000 and an estimated life of 8 years. At the end of two years of service, the company reevaluated the tractor’s useful life. Management extended the useful life an additional four years, but estimated that the tractor would have no residual value at the end of this time. If the company uses straight-line
depreciation , what amount would be recorded as the depreciation expense each year, beginning with the third year?
answer is 12,000 how do you get to this answer?
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