On January 1, 2020, Shapiro Inc. purchased a machine for $115,000. Shapiro depreciated the machine with the straight-line depreciation method over a useful life of 10 years, using a residual value of $5,000. At the beginning of 2022, a major overhaul costing $30,000 was made. After the overhaul, the machine's residual value is estimated to be $7,500, and the machine is expected to have a remaining useful life of 11 years. Required: Determine the depreciation expense for 2022.
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.
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Revision of Depreciation
On January 1, 2020, Shapiro Inc. purchased a machine for $115,000. Shapiro
Required:
Determine the depreciation expense for 2022.
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