Tory Enterprises pays $238,400 for equipment that will last five years and have a $43,600 salvage value. By using the equipment in its operations for five years, the company expects to earn $88,500 annually, after deducting all expenses except depreciation. Prepare a table showing income before depreciation, depreciation expense, and net (pretax) income for each year and for the total five-year period, assuming double-declining-balance depreciation is used.
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.
Tory Enterprises pays $238,400 for equipment that will last five years and have a $43,600 salvage value.
By using the equipment in its operations for five years, the company expects to earn $88,500 annually,
after deducting all expenses except
depreciation expense, and net (pretax) income for each year and for the total five-year period, assuming
double-declining-balance depreciation is used.
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