On April 22, 2023, Carla Vista Enterprises purchased equipment for $136,500. The company expects to use the equipment for 12,500 working hours during its four-year life and that it will have a residual value of $14,000. Carla Vista has a December 31 year end and pro-rates depreciation to the nearest month. The actual machine usage was: 1,900 hours in 2023; 2.700 hours in 2024; 3,900 hours in 2025: 2,900 hours in 2026; and 1,300 hours in 2027.

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A:

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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.