On January 1, 2020, ABC Corp acquired a piece of machinery for $500,000. The machinery has an estimated useful life of 10 years and a residual value of $50,000. ABC Corp decided to use the double-declining balance method for depreciation. Additionally, the company incurred $15,000 in transportation costs and $5,000 in installation costs to get the machinery ready for use. Furthermore, on December 31, 2021, the company conducted an impairment test and determined that the machinery's recoverable amount is $450,000, and its fair value is $420,000. The company expects to use the machinery for the remaining estimated useful life. Prepare the necessary journal entries for ABC Corp related to the machinery for the year 2020 and 2021, including depreciation, impairment, and any adjusting entries needed at the end of each year
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, 2020, ABC Corp acquired a piece of machinery for $500,000. The machinery has an estimated useful life of 10 years and a residual value of $50,000. ABC Corp decided to use the double-declining balance method for
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