the Production company used the straight-line depreciation method for its equipment, the depreciation expense for year X6 would amount to:
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.
Here is the information relating to the equipment of the company Production Inc:
Purchase on January 1 X5 $ 100,000
Estimated useful life 5 years
Estimated residual value $ 10,000
Total hours of intended use 10,000 hours
Number of hours of use in X5 3,000 hours
Number of hours of use in X6 2,500 hours
Declining balance rate 35%
If the Production company used the
a) $ 18,000
b) $ 22,500
c) $ 25,000
d) None of the above
e) $ 20,000
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