On January 1, 2018, CRIMSON Company purchased machineries for $10,560,000 and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value. On January 1, 2021, CRIMSON determined that the machineries had a useful life of six years from the date of acquisition and will have a salvage value of $960,000. An accounting change was made in 2021 to reflect these additional data.
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.
9. How much should be the balance of the
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