On May 1, 2019 equipment worth $40,000 was purchased with cash. Assuming straight-line method of depreciation with $4,000 salvage value and 8 year useful life, what is the amount of depreciation expense to be recognized at December 31, 2019 for the equipment? (Hint: Pay attention to the dates.)
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 May 1, 2019 equipment worth $40,000 was purchased with cash. Assuming straight-line method of
Depreciation refers to reduction in value of an asset over a period of time due to usage of asset in business. It is a book entry passed in Accounting to depreciate asset, and amount by which assets is depreciated transferred to Profit and Loss Statement Debit side as an expense.
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