In recent years, Larkspur Company has purchased three machines. Because of frequent employee turnover in the accounting department, a different accountant was in charge of selecting the depreciation method for each machine, and various methods have been used. Information concerning the machines is summarized in the table below. Machine Acquired Cost Salvage Value Useful Life (years) Depreciation Method 1 1/1/2020 $ 99,800 $ 13,000 8 Straight-line 2 7/1/2021 92,000 11,000 5 Declining-balance 3 11/1/2021 104,000 8,000 6 Units-of-activity For the declining-balance method, Larkspur Company uses the double-declining rate. For the units-of-activity method, total machine hours are expected to be 32,000. Actual hours of use in the first 3 years were 2021, 600; 2022, 4,700; and 2023, 6,700. For Bus #3, calculate depreciable cost per mile under units-of-activity method.
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.
In recent years, Larkspur Company has purchased three machines. Because of frequent employee turnover in the accounting department, a different accountant was in charge of selecting the depreciation method for each machine, and various methods have been used. Information concerning the machines is summarized in the table below.
| Machine | Acquired | Cost | Salvage Value | Useful Life (years) | Depreciation Method |
| 1 | 1/1/2020 | $ 99,800 | $ 13,000 | 8 | Straight-line |
| 2 | 7/1/2021 | 92,000 | 11,000 | 5 | Declining-balance |
|---|---|---|---|---|---|
| 3 | 11/1/2021 | 104,000 | 8,000 | 6 | Units-of-activity |
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