e) 11,200 Accumulated Depreciation-old melter (straight-line) 6,300 Secondhand fair value of old melter 5,200
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.
| List price of new melter | $15,800 | |
| Cash paid | 10,000 | |
| Cost of old melter (5-year life, $700 salvage value) | 11,200 | |
| 6,300 | ||
| Secondhand fair value of old melter | 5,200 |
Prepare the
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Account Titles and Explanation
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Credit
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(a)
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Exchange has commercial substance:
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(To record current depreciation.)
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(To record exchange of the equipment.)
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(b)
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Exchange lacks commercial substance:
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(To record current depreciation.)
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(To record exchange of the equipment.)
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How did you get 15,200 on part a for equipment instead of 15800?
How did get 14200 for equip for part b?
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