Xanadu Company purchased a new machine on October 1, 2014, at a cost of Tk.96,000. The company estimated that the machine will have a residual value of Tk.12,000. The machine is expected to be used for 10,000 working hours during its 5-year life. Requirements: Compute the depreciation expense under the following methods for the year indicated. (a) Straight-line for 2014. (b) Units-of-activity for 2014, assuming machine usage was 1,700 hours. (c) Declining-balance using double the straight-line rate for 2014 and 2015.
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.
Xanadu Company purchased a new machine on October 1, 2014, at a cost of
Tk.96,000. The company estimated that the machine will have a residual value of Tk.12,000.
The
machine is expected to be used for 10,000 working hours during its 5-year life.
Requirements:
Compute the
(a) Straight-line for 2014.
(b) Units-of-activity for 2014, assuming machine usage was 1,700 hours.
(c) Declining-balance using double the straight-line rate for 2014 and 2015.
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