The company purchased the equipment on October 1, 20X1 for $100,000, and estimated that the equipment will use for 5 years and has a residual value of $2,000. The equipment has the following capacity: 10,000 service hours. December 31 is the reporting date. The equipment provided 700 and 2,300 service hours in 20X1 and 20X2, respectively. Calculate depreciation expense for 20X1 and 20X2 using different methods in the following table Straight-line Double-declining-balance Activity method 20X1 20X2
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 company purchased the equipment on October 1, 20X1 for $100,000, and estimated that the equipment will use for 5 years and has a residual value of $2,000. The equipment has the following capacity: 10,000 service hours. December 31 is the reporting date. The equipment provided 700 and 2,300 service hours in 20X1 and 20X2, respectively.
Calculate
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Straight-line |
Double-declining-balance |
Activity method |
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20X1 |
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20X2 |
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