The depreciation of non-current asset depends not just the cost of asset but also its useful life. Now you are given a scenario where the company has purchased an asset of $15000 having an estimated life of 5 years. If the business uses straight line balance method then it will depreciate its asset with the amount of $3000. Then after two years the business found that life of asset was underestimated actually its 8 years. So, the asset still had 6 years in use to come. 1. You are required to consider the above situation and depreciate the asset over its useful life that how it will appear in company’s books of accounts. 2. Company further seeks your assistance to select the appropriate method ofdepreciation either to go for reducing balance method or straight-line balance method. Which method you recommend the company and on what bases?
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.
The depreciation of non-current asset depends not just the cost of asset but also its useful life. Now you are given a scenario where the company has purchased an asset of $15000 having an estimated life of 5 years. If the business uses straight line balance method then it will
Then after two years the business found that life of asset was underestimated actually its 8 years. So, the asset still had 6 years in use to come.
1. You are required to consider the above situation and depreciate the asset over its useful life that how it will appear in company’s books of accounts.
2. Company further seeks your assistance to select the appropriate method ofdepreciation either to go for
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