ABC Co. acquired a new machine. Details of the acquisition are as follows: Cash paid for machine including VAT of ₱60,000 560,000 Royalty payment based on units produced 19,000 Cost of transporting machine 15,000 Cost of installation by expert fitter 40,000 Labor of testing machine 20,000 Materials used and damaged as a result of testing the machine 10,000 Repair cost of new machine damaged in the process of installation 12,000 Cost of training for personnel who will use the machine 25,000 Cost of safety rails and platforms surrounding machine 50,000 Cost of water device to keep machine cool 70,000 Cost of adjustment to machine to make it operate more efficiently 75,000 Estimated dismantling cost to be incurred as required by contract 67,000 Cost of removing old machine 10,000 Loss on premature retirement – old machine 120,000 Gratuity paid to operator of old machine, who was laid off 20,000 Required: Compute for the cost of the new machine.
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. acquired a new machine. Details of the acquisition are as follows:
Cash paid for machine including VAT of ₱60,000 560,000
Royalty payment based on units produced 19,000
Cost of transporting machine 15,000
Cost of installation by expert fitter 40,000
Labor of testing machine 20,000
Materials used and damaged as a result of testing the machine 10,000
Repair cost of new machine damaged in the process of installation 12,000
Cost of training for personnel who will use the machine 25,000
Cost of safety rails and platforms surrounding machine 50,000
Cost of water device to keep machine cool 70,000
Cost of adjustment to machine to make it operate more efficiently 75,000
Estimated dismantling cost to be incurred as required by contract 67,000
Cost of removing old machine 10,000
Loss on premature retirement – old machine 120,000
Gratuity paid to operator of old machine, who was laid off 20,000
Required: Compute for the cost of the new machine.
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