A civil engineer who owns his own design/build/operate company purchased a small crane 3 years go at a cost of ₱60,000. At that time, it was expected to be used for 10 years and then traded in for its salvage value of ₱10,000. Due to increased construction activities, the company would prefer to trade for a new, larger crane now that will cost ₱80,000. The company estimates that the old crane can be used, if necessary, for another 3 years, at which time it would have a ₱23,000 estimated market value. Its current market value is estimated to be ₱39,000, and if it is used for another 3 years, it will have M&O costs (exclusive of operator costs) of ₱17,000 per year. Determine the values of P, n , S , and AOC that should be used for the existing crane in a replacement analysis.
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 civil engineer who owns his own design/build/operate company purchased a small crane 3 years go at a cost of ₱60,000. At that time, it was expected to be used for 10 years and then traded in for its salvage value of ₱10,000. Due to increased construction activities, the company would prefer to trade for a new, larger crane now that will cost ₱80,000. The company estimates that the old crane can be used, if necessary, for another 3 years, at which time it would have a ₱23,000 estimated market value. Its current market value is estimated to be ₱39,000, and if it is used for another 3 years, it will have M&O costs (exclusive of operator costs) of ₱17,000 per year. Determine the values of P, n , S , and AOC
that should be used for the existing crane in a replacement analysis.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
