Question 1 On April 02, 2009 the Global Company acquired equipment. It has estimated useful life of 5 years with salvage value Rs. 5,000 the following expenditure were incurred on it. Billed Price Rs. 275,000. Freight Charges Rs. 2,000 and Transit Insurance Rs. 3,000. Installation Expenses Rs. 25,000 Three years Fire Insurance Rs. 15,000. Company close its accounting period on Dec 31, of every year, and use reducing balance method @ 10% to record depreciation. Instruction:
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.
Question 1
On April 02, 2009 the Global Company acquired equipment. It has estimated useful life of 5 years with salvage value Rs. 5,000 the following expenditure were incurred on it.
- Billed Price Rs. 275,000.
- Freight Charges Rs. 2,000 and Transit Insurance Rs. 3,000.
- Installation Expenses Rs. 25,000
- Three years Fire Insurance Rs. 15,000.
Company close its accounting period on Dec 31, of every year, and use
Instruction:
- Compute the Cost of Equipment.
- Compute the Depreciation for 2009 and 2010
- Record the Depreciation of 2011 in general Journal.
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