Your company purchased an asset with a total cost of $600,000. The asset creates small items used to help produce computer elements. The asset has an expected useful production life of 1,500,000 items. The asset also has an expected residual value of $100,000. In Year 1, the machine produced 120,000 units. In Year 2, the machine produced 145,500 units. In Year 3, the machine produced 180,000 units Please prepare the depreciation amounts for the first 3 years of the asset’s life using Units of Production 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.
Your company purchased an asset with a total cost of $600,000. The asset creates small items used to help produce computer elements. The asset has an expected useful production life of 1,500,000 items. The asset also has an expected residual value of $100,000. In Year 1, the machine produced 120,000 units. In Year 2, the machine produced 145,500 units. In Year 3, the machine produced 180,000 units Please prepare the
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