Vaughn Assembly Company purchased a machine on January 1, 2021, by paying cash of $550,000. The machine has an estimated useful life of five years (or the production of 160,000 units) and an estimated residual value of $50,000.   Required:   Determine depreciation expense for 2021 under straight-line depreciation. Determine depreciation expense for 2022 (year 2) under the double declining balance method. Prepare the journal entry to record the depreciation expense you calculated in part b. If the machine was used to produce and sell 25,000 units in 2021, what would the depreciation expense be in 2021 under the units of production method?

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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.