On 1st Jan 2017,a company purchased a machine costing Rs. 500,000. Its estimated working life is 20 years at the end of which it will fetch Rs. 20000. Additions are made on 1st January 2018 and 1st July 2019 to the value of Rs. 80,000 (scrap value Rs. 4000) and Rs. 40000(scrap value Rs. 2000) respectively. The life of both new machines is 20 years. Show machine A/c for first four years.
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 1st Jan 2017,a company purchased a machine costing Rs. 500,000. Its estimated working
life is 20 years at the end of which it will fetch Rs. 20000. Additions are made on 1st January
2018 and 1st July 2019 to the value of Rs. 80,000 (scrap value Rs. 4000) and Rs. 40000(scrap
value Rs. 2000) respectively. The life of both new machines is 20 years. Show machine A/c for
first four years.
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