ABC & Co imported machine from Italy at Rs.1256,000, Co. paid freight charges Rs.75,000 and insurance in transit Rs.25000. Co also paid import duty Rs.235,000 and transportation charges Rs.5000. Foundation and installation cost incurred Rs. 125,000. Test run cost incurred Rs.15,000. Estimated life of the machine is 20 years and expected scrap value is Rs.250,000. Required: 1) Compute total cost of the machine 2) Compute depreciation expense under following methods for three years: • Straight line method • Diminishing balance method( rate 20% ) • Double declining balance method
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.
ABC & Co imported machine from Italy at Rs.1256,000, Co. paid freight charges Rs.75,000 and insurance in transit Rs.25000. Co also paid import duty Rs.235,000 and transportation charges Rs.5000. Foundation and installation cost incurred Rs. 125,000. Test run cost incurred Rs.15,000.
Estimated life of the machine is 20 years and expected scrap value is Rs.250,000.
Required:
1) Compute total cost of the machine
2) Compute
•
• Diminishing balance method( rate 20% )
• Double declining balance method
Trending now
This is a popular solution!
Step by step
Solved in 9 steps with 2 images
