For financial reporting, Kumas Poultry Farms has used the declining-balance method of depreciation for conveyor equipment acquired at the beginning of 2021 for $2,560,000. Its useful life was estimated to be six years with a $160,000 residual value. At the beginning of 2024, Kumas decides to change to the straight-line method. The effect of this change on depreciation for each year is as follows: Year ($ in thousands) Straight-Line Declining Balance Difference 2021 $ 400 $ 853 $ 453 2022 400 569 169 2023 400 379 (21) $ 1,200 $ 1,801 $ 601 Required: 2. Prepare any 2024 journal entry related to the change.
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.
For financial reporting, Kumas Poultry Farms has used the declining-balance method of
| Year | ($ in thousands) | ||
|---|---|---|---|
| Straight-Line | Declining Balance | Difference | |
| 2021 | $ 400 | $ 853 | $ 453 |
| 2022 | 400 | 569 | 169 |
| 2023 | 400 | 379 | (21) |
| $ 1,200 | $ 1,801 | $ 601 |
Required:
2. Prepare any 2024
Note: Enter you answers rounded to the nearest dollar. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.
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