n January 1, 2016, Susan Company purchased a building and machinery that have the following useful lives, salvage value, and costs. Building, 25-year estimated useful life, $8,200,000 cost, $820,000 salvage value Machinery, 10-year estimated useful life, $1,660,000 cost, no salvage value The building has been depreciated under the straight-line method through 2020. In 2021, the company decided to switch to the double-declining balance method of depreciation for the building. Susan also decided to change the total useful life of the machinery to 8 years, with a salvage value of $83,000 at the end of that time. The machinery is depreciated using the straight-line method.
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.
On January 1, 2016, Susan Company purchased a building and machinery that have the following useful lives, salvage value, and costs.
| Building, 25-year estimated useful life, $8,200,000 cost, $820,000 salvage value |
| Machinery, 10-year estimated useful life, $1,660,000 cost, no salvage value |
The building has been
a. Prepare the
b. Compute depreciation expense on the equipment for 2021.
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