UMET Co. purchased equipment on January 1, 2020, at a cost of $600,000. The equipment is expected to have a service life of ten years, or 50,000 hours, and a residual value of $40,000. During 2020, the equipment was operated for 4,000 hours, and during 2021 it was operated for 7,000 hours. REQUIRED: determine the depreciation expense and accumulated depreciation for this machine in 2020 and 2021 under each of the following depreciation methods Sum of the year's digits - depreciation expense - accumulated depreciation
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.
UMET Co. purchased equipment on January 1, 2020, at a cost of $600,000. The equipment is expected to have a service life of ten years, or 50,000 hours, and a residual value of $40,000. During 2020, the equipment was operated for 4,000 hours, and during 2021 it was operated for 7,000 hours.
REQUIRED:
determine the
Sum of the year's digits
- depreciation expense
- accumulated depreciation
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