ournalize all entries required on the above dates, including entries to update depreciation, where applicable, on assets disposed of. Ridge Company uses straight-line depreciation.
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.
| Jan. | 1 | Retired a piece of machinery that was purchased on January 1, 2005. The machine cost $64,890 on that date. It had a useful life of 10 years with no salvage value. | |
| June | 30 | Sold a computer that was purchased on January 1, 2012. The computer cost $37,720. It had a useful life of 5 years with no salvage value. The computer was sold for $13,490. | |
| Dec. | 31 | Discarded a delivery truck that was purchased on January 1, 2011. The truck cost $39,150. It was depreciated based on a 6-year useful life with a $2,910 salvage value. |
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Account Titles and Explanation
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Credit
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Jan. 1
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June 30
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(To record depreciation to date of disposal)
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June 30
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Dec. 31
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(To record depreciation to date of disposal)
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Dec. 31
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| (To record retirement of equipment at a gain/loss) |
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