The Diamond Glitter Company is in the process of preparing its financial statements for 2012. Assume that no entries for depreciation have been recorded in 2012. The following information related to depreciation of fixed assets is provided to you.
To calculate the depreciation expense for the fixed assets, we need the following information:
1. Cost of the fixed assets: The initial cost of acquiring the fixed assets.
2. Useful life: The estimated number of years that the fixed assets will be in use.
3. Salvage value: The estimated value of the fixed assets at the end of their useful life.
Once we have this information, we can use one of the following depreciation methods to calculate the depreciation expense:
1. Straight-line method: This method spreads the cost of the fixed assets evenly over their useful life.
Depreciation Expense = (Cost - Salvage Value) / Useful Life
2. Units-of-production method: This method calculates depreciation based on the number of units produced or the usage of the fixed assets.
Depreciation Expense per unit = (Cost - Salvage Value) / Total Units of Production
Depreciation Expense = Depreciation Expense per unit * Units Produced or Usage
3. Double-declining balance method: This method applies a higher depreciation expense in the early years and decreases it over time.
Depreciation Rate = (100% / Useful Life) * 2
Depreciation Expense = Book Value * Depreciation Rate
(Note: Book Value = Cost - Accumulated Depreciation)
To calculate the depreciation expense for each fixed asset, you need to gather the cost, useful life, and salvage value information for each asset. Then, apply the appropriate depreciation method and formulas mentioned above to calculate the depreciation expense for each asset. Finally, summarize the total depreciation expense to include it in the company's financial statements for 2012.