piece of equipment is purchased for $40,000 and has an estimated salvage value of $1,000 at the end of the recovery period. Prepare a depreciation schedule for the piece of equipment using the straight-line method, the sum-of-the-years method, and the 200% declining-balance method with a recovery period of five years. Compare these depreciation methods in a graph.
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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Account
A piece of equipment is purchased for $40,000 and has an estimated salvage value of $1,000 at the end of the recovery period. Prepare a
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