Depreciation ProblemA machine which cost $400,000 is acquired on August 1, 2020. Its estimated salvagevalue is $30,000 and its expected life is 8 years.InstructionsCalculate depreciation expense for 2020 and 2021 by each of the followingmethods, showing the figures used.(a) Double-declining balance(b) Sum-of-the-years'-digits
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.
A machine which cost $400,000 is acquired on August 1, 2020. Its estimated salvage
value is $30,000 and its expected life is 8 years.
Instructions
Calculate depreciation expense for 2020 and 2021 by each of the following
methods, showing the figures used.
(a) Double-declining balance
(b) Sum-of-the-years'-digits
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