Hope Hospital purchased a special X-ray machine. The machine, which cost $311,560, was expected to last ten
Question:
Hope Hospital purchased a special X-ray machine. The machine, which cost $311,560, was expected to last ten years, with an estimated residual value of $31,560. After two years of operation (and depreciation charge using the straight-line method), it became evident that the X-ray machine would last a total of only seven years. The estimated residual value, however, remain the same. Given this information, determine the new depreciation charge for the third year on the basis of the revised estimated useful life.
Step by Step Answer:
Cost 311560 Residual value 31560 Depreciable cost 280000 Fir...View the full answer
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In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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