Company A want to estimate future earnings, the following data are available from Company B: net income in year 1: 15000 JD, year 2: 25000 JD. Assets include: equipment with FV 10% lower than book value, building with FV 5% lower than book value, patents with 8% higher than book value, discontinued loss 1000 (year 2), extraordinary gain 800 (year 1), equipment depreciation (each year) 10000 JD, building depreciation (each year) 5000 JD, patent amortization (each year) 8000 JD, rent exp. 2000 JD (each year). Compute future earnings. Select one: a. 18710 b. 21290 c. 20710 d. 19290

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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.