Majestic LLC purchased a factory for lump-sum of RO800,000 paid via bank. The fair value of each of the component of the purchase is given below: Land 85000 Building 155000 Equipment 460000 Calculate the amount at which each of the above components shall be recognized on purchase date and write the journal entry for recording purchase transaction.

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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.