On June 1, Aggie Company purchased equipment for $ 50,000. The equipment has a 7yr life with a residual value of $5,000. Aggie uses units-of-production method depreciation and the equipment is expected to yield 9,000 operating hours. (a) Calculate the depreciation expense per hour of operation. (b) The bulldozer is operated 1,000 hours in the first year, 200 hours in the second year, and 1,400 hours in the third year of operations. Journalize the depreciation expense for each year. Date Account Title Debit Credit Year 1 Year 1 Year 3
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 June 1, Aggie Company purchased equipment for $ 50,000. The equipment has a 7yr life with a residual value of $5,000. Aggie uses units-of-production method depreciation and the equipment is expected to yield 9,000 operating hours.
(a) Calculate the depreciation expense per hour of operation.
(b) The bulldozer is operated 1,000 hours in the first year, 200 hours in the second year, and 1,400 hours in the third year of operations. Journalize the depreciation expense for each year.
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