Equipment acquired at a cost of Rs. 72,000 has an estimated residual value of Rs. 3,000 and an estimated useful life of 5 years. It was placed in service on July 31 of the current fiscal year, which ends on December 31, Determine the depreciation for the current fiscal and the following fiscal year by (a) by the straight-line method, (b) by the declining-balance method, using twice the straight-line rate (40%) and (c) by the sum of the year digit 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.
Equipment acquired at a cost of Rs. 72,000 has an estimated residual value of Rs. 3,000 and an estimated useful life of 5 years. It was placed in service on July 31 of the current fiscal year, which ends on December 31, Determine the
(a) by the straight-line method,
(b) by the declining-balance method, using twice the straight-line rate (40%) and
(c) by the sum of the year digit method.
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