Calculate annual depreciation expense using the straight-line, units-of-production, and double-declining balance methods.
Calculate annual depreciation expense using the straight-line, units-of-production, and double-declining balance methods.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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.
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Transcribed Image Text:A machine costing $956,250 with a five-year useful life and a $95,625 salvage value is installed in the factory on January 1. The
factory manager estimates the machine will produce 25,500 units of product during its life. It actually produces the following units:
4,100 in Year 1: 5,100 in Year 2; 6,100 in Year 3; 6,100 in Year 4; and 4,100 in Year 5.
Calculate annual depreciation expense using the straight-line, units-of-production, and double-declining balance methods.
Year 1
Year 2
Year 3
Year 4
Year 5
Totals
Straight-line
Units-of-production
Double-declining
balance
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