Depreciation Choices and Outcomes. Reddic Co. purchased a new machine on January 1. The following information pertains to the purchase: Life of asset Salvage value. Purchase price Sales tax.. Freight cost. Electrical set-up Custom programming. Estimated annual labor savings Additional revenue generated.. 5 years $ 3,500 35,000 3,000 1,200 800 1,500 3,500 $ 8,000
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.
a.Determine the capitalized cost of the new machine
b. Compute annual
c. Assume the machine is sold for $9,000 at the end of the third year after depreciation has been calculated. Determine the gain or loss assuming
-Straight-line depreciation
-Double-declining-balance method
d. Given your answer in part c, if Mulligan was able to perfectly predict the future that the machine would be sold for $9,000 at the end of the third year, which depreciation method should Reddic choose? Ignore taxes.
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