RDP and Brothers purchased a panel truck for $25,000 on January 1, 2017. It estimated the life
Question:
a. In line with generally accepted accounting principles, determine the amounts required here.
b. Why did you decide to initially recognize the cost as an asset rather than treat it as an expense? What basic assumption of financial accounting are you relying upon in this decision?
c. Why did you allocate a portion of the cost to each of the five years? What basic principle of financial accounting measurement are you relying upon in this decision?
2017 2018 2019 2021 2020 Original cost Depreciation expense Accumulated depreciation Net book value
Step by Step Answer:
a b Since the truck has an estimated useful life of five years it is assumed that RDP and Brothers w...View the full answer
Related Video
Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.
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