Timmy Thomas Company provided the following summary of its fixed assets: Assuming sum-of-the-years digits’ method is used, depreciation on the factory building for the third year of its service life is _______________ Factory Building Machinery and Equipment Small Tools Patterns Total Cost 4,800,000 1,400,000 82,000 53,000 Estimated Residual Value 300,000 80,000 5,000 - Estimated Useful Life 40 years 20 years 8 years 4 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.
Timmy Thomas Company provided the following summary of its fixed assets:
Assuming sum-of-the-years digits’ method is used,
|
|
Factory Building |
Machinery and Equipment |
Small Tools |
Patterns |
|
Total Cost |
4,800,000 |
1,400,000 |
82,000 |
53,000 |
|
Estimated Residual Value |
300,000 |
80,000 |
5,000 |
- |
|
Estimated Useful Life |
40 years |
20 years |
8 years |
4 years |
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