On 1-October-2011, Unique Garments Company Ltd. purchased a Stitching Unit on cash $850,000. The useful life of Stitching Unit is 5 years and residual value is $50,000. During its life the Stitching Unit produces 5 million shirts. Following table shows number of units of shirts produced by in each year. Year Shirts Produced 1 1,700,000 2 1,300,000 3 950,000 4 700,000 5 350,000 Total 5,000,000 Prepare Depreciation Schedule for Stitching Unit for 5 years under each of the following methods a) Straight Line Depreciation Method b) Declining Balance Method c) Unit-of-Output 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.
On 1-October-2011, Unique Garments Company Ltd. purchased a Stitching Unit on cash $850,000. The
useful life of Stitching Unit is 5 years and residual value is $50,000. During its life the Stitching Unit
produces 5 million shirts. Following table shows number of units of shirts produced by in each year.
Year Shirts Produced
1 1,700,000
2 1,300,000
3 950,000
4 700,000
5 350,000
Total 5,000,000
Prepare
a) Straight Line
b) Declining Balance Method
c) Unit-of-Output Method
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