# Depreciation

Q41. Depreciation
On January 1, 20×1, Entity A purchased a building with the following information.
(a) Cost of building = \$900,000
(b) Residual value (salvage value) = \$90,000
(c) Expected useful life = 30 years
(d) Entity A uses the straight-line depreciation method.
Prepare a journal entry to record the depreciation expense for the year ending December 31, 20×1.

A41. Straight-line depreciation method

 Debit Credit Depreciation expense 27,000 Accumulated depreciation 27,000

[Note]
Annual depreciation expense = (Cost – Residual value) x 1/Useful life
= (\$900,000 – \$90,000) x 1/30
= \$810,000 x 1/30 = \$27,000

[Exercise]
On September 1, 20×1, Entity B purchased equipment with the following information.
(a) Cost of equipment = \$600,000
(b) Residual value (salvage value) = \$60,000
(c) Expected useful life = 10 years
(d) Entity B uses the straight-line depreciation method.
Prepare a journal entry to record the depreciation expense for the four-month period from September 1 to December 31, 20×1.

 Debit Credit Depreciation expense 18,000 Accumulated depreciation 18,000

[Note]
1. Annual depreciation expense = (Cost – Residual value) x 1/Useful life
= (\$600,000 – \$60,000) x 1/10 = \$540,000 x 1/10 = \$54,000
2. Depreciation expense for the four-month period from September 1 to December 31, 20×1
= Annual depreciation expense x 4/12 = \$54,000 x 4/12 = \$18,000