warehouse that cost $170,000 with a residual value of $10,000 is being depreciated over 20 years. On January 1, 2015, an additional wing was constructed for $80,000. At the time of the construction, the warehouse was 15 years old. The estimated life of the wing, considered separately from the original warehouse, is 10 years, and $15,000 is its estimated residual value. Record these entries: Assume that the warehouse and addition were sold on December 31, 2016, $147,000 cash. Record the entry for sale if, at the time of sale, the fair value of the original warehouse is $74,000, and the fair value of
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.
Scenario 2:
A warehouse that cost $170,000 with a residual value of $10,000 is being
Record these entries:
- Assume that the warehouse and addition were sold on December 31, 2016, $147,000 cash. Record the entry for sale if, at the time of sale, the fair value of the original warehouse is $74,000, and the fair value of the addition is $73,000. Assume that the
adjusting entries for 2016 have already been completed. Show the amount for gain/loss for the warehouse and addition as separate accounts.
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