Depreciation by units of activity method A diesel-powered tractor with a cost of $120,000 and an estimated residual value of $16,400 is expected to have a useful operating life of 28,000 hours. During April , the tractor was operated 150 hours. Determine the depreciation for the month.
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.
A diesel-powered tractor with a cost of $120,000 and an estimated residual value of $16,400 is expected to have a useful operating life of 28,000 hours. During April , the tractor was operated 150 hours. Determine the depreciation for the month.
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