Obj. 2 A piece of heavy equipment acquired on January 1 at a cost of $360,000 has an estimated useful life of 20 years. Assuming that it will have no residual value, determine the depreciation for each of the first two years ending December 31 by a. the straight-line method and b. the double-declining-balance 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.
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