On November 15, 2021, Trade Company made payments for the following expenditures: Replacement parts for overhaul of machine 550,000 Labor and overhead in connection with overhaul 140,000 Continuing, frequent and low cost repairs 150,000 Replacement of broken gear of machine 50,000 The overhaul resulted in a significant increase in production. Prepare the journal entry to record the expenditure to be capitalized:
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 November 15, 2021, Trade Company made payments for the following expenditures:
Replacement parts for overhaul of machine 550,000
Labor and overhead in connection with overhaul 140,000
Continuing, frequent and low cost repairs 150,000
Replacement of broken gear of machine 50,000
The overhaul resulted in a significant increase in production.
Prepare the
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