straight-line method of 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.
Diamond Ltd acquired an item of polishing equipment on 1 July 2015 for $440,000. The equipment is
expected to have a useful life of 10 years and the straight-line method of
It has salvage value of $40,000. On 1 July 2017, the equipment is deemed to have a fair value of
$424,000 and revaluation is undertaken in accordance with the Diamond Ltd policy of measuring
property, plant and equipment at fair value. The asset is still usable for next 8 years but the salvage
value is determined to be zero. The asset is sold for $356,000 on 1 July 2019.
Required:
Provide the
events. (Ignore narrations). Show your workings.
01/07/2015
01/07/2017
01/07/2019
Journal entry refers to the summary of debits and credits of transaction.
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