QRS ltd purchased a machine on 1 July 2014 for GHS500,000. It is being depreciated on a straight line basis over its expected life of ten years. Residual value is estimated at GHS20,000. On 1 January 2015, following a change in legislation, QRS ltd fitted a safety guard to the machine. The safety guard cost GHS25,000 and has a useful life of five years with no residual value. What is the depreciation charge for this machine in the year ended 31 March 2015?
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.
QRS ltd purchased a machine on 1 July 2014 for GHS500,000. It is being
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