On January 1, 2019, Nobel Corporation acquired machinery at a cost of $1,600,000. Nobel adopted the straight-line method of depreciation for this machine and had been recording depreciation over an estimated life of ten years, with no residual value. At the beginning of 2022, a decision was made to change to the double-declining balance method of depreciation for this machine. Assuming a 20% tax rate, the cumulative effect of this accounting change on beginning retained earnings, is a. $300,800. b. $0. c. $240,640. d. $179,200.
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 January 1, 2019, Nobel Corporation acquired machinery at a cost of $1,600,000. Nobel adopted the straight-line method of
Assuming a 20% tax rate, the cumulative effect of this accounting change on beginning
a. $300,800.
b. $0.
c. $240,640.
d. $179,200.
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