units-of-production method
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.
Ricky Corporation purchased equipment on January 1, 2016 for $168,803. It is
estimated that the equipment will have a $14,000 residual value at the end of its 8-year
useful life. It is also estimated that the equipment will produce 110,000 units over its 8-
year life. Round the rate per unit to two decimals.
On December 31, 2018, Ricky sells the equipment for $85,000.
Ricky produced 20,000 units in 2016, 24,000 units in 2017 and 22,000 units in 2018.
Instructions
(a) Determine the carrying amount of the equipment at December 31, 2018
using the units-of-production method of
(b) Prepare the appropriate
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