Gundrum Company purchased equipment on January 1, 2015 for $920,400. The equipment was expected to have a useful life of 10 years and a salvage value of $33,000. Gundrum uses the straight-line method of depreciation. At the beginning of 2020, Gundrum determined the total estimated life of the equipment was 13 years and the residual value would be $9,800 at the end of that time. Required: Prepare any entry needed in 2020 to account for this 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.
| Prepare any entry needed in 2020 to account for this change. |
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