A company issued a purchase order on December 15, year 1, for a piece of capital equipment that costs $100,000. The capital equipment was shipped from the vendor on December 31, year 1, and received by the company on January 5, year 2. The equipment was installed and placed in service on February 1, year 2. On what date should the depreciation expense begin?

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Business

Alma Dickson

29 May, 12:10

A company issued a purchase order on December 15, year 1, for a piece of capital equipment that costs $100,000. The capital equipment was shipped from the vendor on December 31, year 1, and received by the company on January 5, year 2. The equipment was installed and placed in service on February 1, year 2. On what date should the depreciation expense begin?

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Samir Newton · Answer 1

Answer: Option D

Explanation: Depreciation refers to the wearing and tearing of asset that occurs due to the usage of it. This is usually calculated on fixed assets having finite useful life.

Therefore, depreciation can occur only after the asset is put into use for business operations and is generating revenue to the company. In the given case the asset purchased has been into use on February 1, year 2, therefore depreciation should begin from this date.