T-Mitch calculates and records depreciation using the straight line method. A piece of machinery was purchased on January 1st and depreciation on this asset needs to be recorded on December 31st to ensure financial statements are accurate. Based on the following information, how much depreciation expense should be recognized on December 31st of Year 1? Machinery Purchase Price 175,000 Freight and Delivery Costs 2000 Installation and Testing Costs 800 Salvage Value 2000 Useful Life in Years 15
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.
T-Mitch calculates and records
| Machinery Purchase Price | 175,000 |
| Freight and Delivery Costs | 2000 |
| Installation and Testing Costs | 800 |
| Salvage Value | 2000 |
| Useful Life in Years | 15 |
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