Mickey Mouse purchased a machine for $ 260,000 from Donald Duck on January 3, 2022. It made the following estimates: Service life 5 years or 20,000 hours Production 300,000 units Residual value $ 40,000 In 2022, Mickey uses the machine for 2000 hours and produces 50,000 units. Required: Compute the depreciation for 2022 under each of the following methods: straight line sum-of-the-years-digits double-declining-balance activity method based on hours worked activity method based on units of output
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.
Mickey Mouse purchased a machine for $ 260,000 from Donald Duck on January 3, 2022. It made the following estimates: Service life 5 years or 20,000 hours Production 300,000 units Residual value $ 40,000 In 2022, Mickey uses the machine for 2000 hours and produces 50,000 units. Required: Compute the
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