singh enterprises, which started business on 1 January 2016, has a reporting period to 31 december and uses the straight-line method of depreciation. on 1 January 2016, the business bought a machine for £10,000. The machine had an expected useful life of four years and an estimated residual value of £2,000. on 1 January 2017, the business bought another machine for £15,000. This machine had an expected useful life of five years and an estimated residual value of £2,500. on 31 december 2018, the business sold the first machine bought for £3,000. Required: show the relevant income statement extracts and statement of financial position extracts for the years 2016, 2017 and 2018.
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.
singh enterprises, which started business on 1 January 2016, has a reporting period to 31 december and uses the straight-line method of
Required:
show the relevant income statement extracts and
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