A storage tank acquired at the beginning of the fiscal year at a cost of $172,000 has an estimated residual value of $20,000 and an estimated useful life of eight years. In order to make a decision which method the company should used, determine the following: (a) the amount of annual depreciation by the straight-linemethod and (b) the amount of depreciation for the first and second years computed by the double-declining-balance method. Prepare a comparative working paper showing the amounts.
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.
estimated residual value of $20,000 and an estimated useful life of eight years. In order to make a decision which method the company should used, determine the following: (a) the amount of annual
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