The Upjohn Company purchased new packaging equipment with an estimated useful life offive years. The cost of the equipment was $55,000,and the salvage value was estimated to be $5,000at the end of year 5. Compute the annual depreciation expenses over the five-year life of the equipment under each of the following methods of bookdepreciation:(a) Straight-line method(b) Double-declining-balance method
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 Upjohn Company purchased new packaging equipment with an estimated useful life of
five years. The cost of the equipment was $55,000,
and the salvage value was estimated to be $5,000
at the end of year 5. Compute the annual
depreciation:
(a) Straight-line method
(b) Double-declining-balance method
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