Question

Smart Touch Learning purchases office equipment on December 1 for $ 27000. The useful life of the furniture is 10 years and there is no residual value. What is the depreciation expense per month for the​ furniture?

Answer 1

The monthly depreciation expense for Smart Touch Learning's office equipment, which cost $27,000 with no residual value and a useful life of 10 years, is $225.

Step-by-step explanation:

The calculation of depreciation expense for Smart Touch Learning's office equipment involves determining the annual depreciation and then breaking it down into monthly expenses. For the office equipment with a cost of $27,000 and a useful life of 10 years with no residual value, the annual depreciation is calculated by dividing the cost ($27,000) by the useful life (10 years), resulting in an annual depreciation of $2,700 ($27,000 / 10 years = $2,700 per year).

To find the monthly depreciation expense, this annual figure is further divided by 12 months, giving a monthly depreciation of $225 ($2,700 / 12 months = $225 per month).

This methodology aligns with the straight-line depreciation method, a common approach in accounting. Straight-line depreciation evenly distributes the cost of an asset over its useful life, assuming a linear decline in value. In this case, Smart Touch Learning spreads the $27,000 cost of the office equipment over 10 years, resulting in a consistent annual depreciation expense of $2,700, further divided into equal monthly installments of $225.

This systematic allocation of depreciation expenses is crucial for financial reporting, allowing businesses to accurately reflect the gradual reduction in the value of their assets over time while adhering to accounting principles.