The following are some transactions of Carla Vista Company for 2024. Carla Vista Company uses straight-line depreciation and has December 31 year end. Apr. 1 July 30 Nov. 1 Retired a piece of equipment that was purchased on January 1, 2015, for $56,000. The equipment had an expected useful life of 10 years with no residual value. Sold equipment for $1,300 cash. The equipment was purchased on January 3, 2022, for $14,040 and was depreciated over an expected useful life of three years with no residual value. Traded in an old vehicle for a new vehicle, receiving a $10,000 trade-in allowance and paying $36,000 cash. The old vehicle had been purchased on November 1, 2018, at a cost of $35,800. The estimated useful life was eight years and the estimated residual value was $7,000. The fair value of the old vehicle was $9,400 on November 1, 2024.

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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.