On January 1, Hawaiian Specialty Foods purchased equipment for $31,000. Residual value at the end of an estimated four-year service life is expected to be $5,800. The company expects the machine to operate for a total of 21,000 hours. The machine operated for 3,110 hours in the first year and 3,410 hours in the second year. Record depreciation expense for the first two years using the activity-based 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.
On January 1, Hawaiian Specialty Foods purchased equipment for $31,000. Residual value at the end of an estimated four-year service life is expected to be $5,800. The company expects the machine to operate for a total of 21,000 hours. The machine operated for 3,110 hours in the first year and 3,410 hours in the second year.
Record
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