An equipment costing Rs.122,050 was purchased on March 1, 2010. The estimated useful life was 10 years and the salvage value was Rs.2,050 on Jan 1, 2014 the company decided to sale this equipment, because it was no longer required. Cash of Rs.50,000 was received on the sale of this equipment. The company uses straight line method for charging, depreciation expense, and the closing financial accounting year is December 31, each year. Required: Calculate the depreciation expense up-to Dec 31, 2013. Pass adjusting entry
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.
An equipment costing Rs.122,050 was purchased on March 1, 2010. The estimated useful life was 10 years and the salvage value was Rs.2,050 on Jan 1, 2014 the company decided to sale this equipment, because it was no longer required. Cash of Rs.50,000 was received on the sale of this equipment.
The company uses
Required:
- Calculate the depreciation expense up-to Dec 31, 2013.
- Pass
adjusting entry on Jan 1, 2014 for disposal of equipment
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