SPI Ltd. purchased new excavating equipment at the beginning of Year 1. The equipment has a cost of $37,000, an estimated life of five years, and an estimated residual value of $7,000. A full year's depreciation expense is to be recorded in Year 1. The equipment was used 20,000 hours during Year 1 and 24,000 hours during Year 2. The number of expected hours over five years is 100,000. What is the amount by which double-declining-balance depreciation would exceed straight-line depreciation over the five-year life of the equipment? $0 $6,000 $7,000 $37,000
SPI Ltd. purchased new excavating equipment at the beginning of Year 1. The equipment has a cost of $37,000, an estimated life of five years, and an estimated residual value of $7,000. A full year's depreciation expense is to be recorded in Year 1. The equipment was used 20,000 hours during Year 1 and 24,000 hours during Year 2. The number of expected hours over five years is 100,000. What is the amount by which double-declining-balance depreciation would exceed straight-line depreciation over the five-year life of the equipment? $0 $6,000 $7,000 $37,000
Chapter1: Financial Statements And Business Decisions
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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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Transcribed Image Text:SPI Ltd. purchased new excavating equipment at the beginning of Year 1. The equipment has a cost of
$37,000, an estimated life of five years, and an estimated residual value of $7,000. A full year's
depreciation expense is to be recorded in Year 1. The equipment was used 20,000 hours during Year 1
and 24,000 hours during Year 2. The number of expected hours over five years is 100,000.
What is the amount by which double-declining-balance depreciation would exceed
straight-line depreciation over the five-year life of the equipment?
O $0
$6,000
$7,000
$37,000
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