Samson Manufacturing Company, a calendar year company, purchased a machine for $65,000 on January 1, 2015. At the date of purchase, Samson incurred the following additional costs: Loss on sale of old machinery $ 1,000 Freight-in 500 Installation cost 2,000 Testing costs prior to regular operation 300 The machine’s estimated salvage value was $5,000, and Samson estimated it would have a useful life of 20 years with depreciation being computed on the straight-line method. In January 2017, accessories costing $3,600 were added to the machine to reduce its operating costs. These accessories neither prolonged the machine’s life nor provided any
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.
Samson Manufacturing Company, a calendar year company, purchased a machine for $65,000 on January 1, 2015. At the date of purchase, Samson incurred the following additional costs:
| Loss on sale of old machinery | $ | 1,000 | |
| Freight-in | 500 | ||
| Installation cost | 2,000 | ||
| Testing costs prior to regular operation | 300 | ||
The machine’s estimated salvage value was $5,000, and Samson estimated it would have a useful life of 20 years with
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