Changing an asset’s useful life and residual value Salem Hardware Consultants purchased a building for $540,000 and depreciated it on a straight-line basis over a 40-year period. The estimated residual value is $100,000. After using the building for 15 years, Salem realized that: wear and tear on the building would wear it out before 40 years and that the estimated residual value should be $88,000. Starting with the 16th year, Salem began depreciating the building over a revised total life of 35 years using the new residual value. Journalize depreciation expense on the building for years 15 and 16.
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.
Changing an asset’s useful life and residual value
Salem Hardware Consultants purchased a building for $540,000 and
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