Depreciating a fixed asset During 2018, Starbucks purchased fixed assets costing approximately $1.8 billion. Assume that the company purchased the assets at the beginning of the year, uses straight-line depreciation, and normally depreciates its equipment over four years. Assume a zero salvage value. Compute the book value of the equipment at the end of each of the four years. Complete a chart like the following. 2018 2019 2020 2021 Total Depreciation expense (in millions) Cash outflow associated with the purchase of the equipment (in millions) What is the purpose of the adjustments at the end of each period?
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.
Depreciating a fixed asset
During 2018, Starbucks purchased fixed assets costing approximately $1.8 billion. Assume that the company purchased the assets at the beginning of the year, uses straight-line
- Compute the book value of the equipment at the end of each of the four years.
- Complete a chart like the following.
2018 2019 2020 2021 Total Depreciation expense (in millions) Cash outflow associated with the purchase of the equipment (in millions) - What is the purpose of the adjustments at the end of each period?
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So, is the book value at the end of 2019 90,000,000?
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