On January 1, 20X1, the company purchased an equipment for $180,000. The equipment has a useful life of 12 years with no residual value. The company uses straight-line depreciation and revalues the equipment every three years. The company’s reporting date is December 31. The equipment’s fair value is $117,000 at December 31, 20X3, and $100,000 at December 31, 20X6. Prepare journal entries to revalue the equipment as at December 31, 20X3 and December 31, 20X6 (using the asset adjustment method).
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, 20X1, the company purchased an equipment for $180,000. The equipment has a useful life of 12 years with no residual value. The company uses straight-line
depreciation and revalues the equipment every three years. The company’s reporting date is December 31. The equipment’s fair value is $117,000 at December 31, 20X3, and $100,000 at December 31, 20X6.
Prepare
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