In 1998, Concord Company completed the construction of a building at a cost of $2.100.000 and first occupied it in January 1999. It was estimated that the building will have a useful life of 40 years and a salvage value of $63.200 at the end of that time. Early in 2009, an addition to the building was constructed at a cost of $525,000. At that time, it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years, and that the addition would have a life of 30 years and a salvage value of $21,000. In 2027, it is determined that the probable life of the building and addition will extend to the end of 2058, or 20 years beyond the original estimate

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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.