On January 1 2017, R. Rhooms, a Manufacturer, purchased a drill machine for the sum of $4,000,000 paying by cheque. It has an estimated life of 5 years and a scrap value $500,000. Rhooms has chosen to use the straight-line method of depreciation. You have been asked to prepare the following for the first three (3) years: a) Machinery account b) Journal entries to record depreciation c) Provision for depreciation account d) Balance sheet extract
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.
On January 1 2017, R. Rhooms, a Manufacturer, purchased a drill machine for the sum of $4,000,000 paying by cheque. It has an estimated life of 5 years and a scrap value $500,000.
Rhooms has chosen to use the straight-line method of
You have been asked to prepare the following for the first three (3) years:
a) Machinery account
b)
c) Provision for depreciation account
d) Balance sheet extract
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