A company purchased a special purpose machine on August 1 of the past year, and it was installed and ready to run on January 1 of this year. The following costs were incurred in the purchase and installation of the machine. Invoice price ---------------------------------------------------- AED 125,000 Sales tax----------------------------------------------------------AED 5250. Insurance charges----------------------------------------------- AED 1500 Adjustments to run the machine ------------------------------AED 160 Electrical and power connection charges ----------------- AED 220 Fines paid during the transport of the machinery------ AED 400 Damage repairs due to negligence of the worker----- AED 375 Compute the acquisition cost of the machinery. Do we take all or ignore few. If so why?

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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.