The “Big-Deal” Company has purchased new furniture for their offices at a retail price of $125,000. An additional $20,000 has been charged for insurance, shipping, and handling. The company expects to use the furniture for 10 years (useful life = 10 years) and then sell it at a salvage (market) value of $15,000. Use the SL method of depreciation to answer these questions. Solve, a. What is the depreciation during the second year? b. What is the BV of the asset at the end of the first year? c. What is the BV of the asset after 10 years?
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.
The “Big-Deal” Company has purchased new furniture for their offices at a retail price of $125,000. An additional $20,000 has been charged for insurance, shipping, and handling. The company expects to use the furniture for 10 years (useful life = 10 years) and then sell it at a salvage (market) value of $15,000. Use the SL method of
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