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Determining fixed asset’s book value The balance in the equipment account is $3,150,000, and the balance in the accumulated depreciation—equipment account is $2,075,000. A. What is the book value of the equipment? B. Does the balance in the accumulated depreciation account mean that the equipment’s loss of value is $2,075,000? Explain.
Financial And Managerial Accounting
Solutions
Financial And Managerial Accounting
Determining fixed asset’s book value
The balance in the equipment account is $3,150,000, and the balance in the accumulated depreciation—equipment account is $2,075,000.
- A. What is the book value of the equipment?
- B. Does the balance in the accumulated depreciation account mean that the equipment’s loss of value is $2,075,000? Explain.
A.
Determine the book value of equipment.
Explanation of Solution
Fixed assets:
Fixed assets are long lived economic resources which are owned by the company. Fixed asset accounts are increased by the debits and decreased by the credits. Thus, fixed asset accounts normally show debit balances (balance sheet).
Depreciation expenses:
Depreciation is permanent decreases in the monetary value of an asset over the time period due to use, wear and tear or obsolescence. It is the process of allocating (allocation concept) the cost of an asset to expense over its useful life. Depreciation expense is the amount of depreciation that is reported (expenses) on the income statement.
Accumulated depreciation:
Accumulated depreciation refers to the amount of depreciation that is subtracted from the value of assets in the balance sheet over a period of time.
The book value of equipment is as follows:
B.
Explain whether the balance of accumulated depreciation indicates the equipment’s loss of value.
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