ation schedule; one time used consumable cannot be depreciated. Depreciation Model 1-Straight line: Constant amount of depreciation each year or period over the depreciable life of t d-(B-SV)/N, where N: depreciable life; B: cost basis; de depreciation in year/period k BV,: book value at the end of kc am Scenario Acme purchased a coordinate measurement machine (CMM). The cost basis is $120,000 and it has a seven year depreciable of $22,000 at the end of seven years. Determine the annual depreciation amounts using SL depreciation. Solution This is your initial spending at the beginning of year 1, which w In this scenario, the cost basis 8-5 asset. Salvage value SV-S This is the end value of this equipment at the end of year seven, meaning your get the money back. This will be reported as your income, but the

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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6
1. Tangible, e.g can be seen or touched by individuals; services cannot be depreciated; and
2. Continuing in service, e.g. has a depreciation schedule; one time used consumable cannot be depreciated.
Depreciation Model 1-Straight line: Constant amount of depreciation each year or period over the depreciable life of the asset.
d, (B-SV)/N, where N. depreciable life; B: cost basis; de depreciation in year/period k BV: book value at the end of k; and SV salvage value.
Scenario
Acme purchased a coordinate measurement machine (CMM). The cost basis is $120,000 and it has a seven year depreciable life. Acme estimates a salvage value
of $22,000 at the end of seven years. Determine the annual depreciation amounts using SL depreciation.
Solution
In this scenario, the cost basis B-5
This is your initial spending at the beginning of year 1, which will be reported as part of your
asset.
Salvage value SV-$
This is the end value of this equipment at the end of year seven, meaning you could sell the used machine and
get the money back. This will be reported as your income, but the same dollar amount would be removed from your asset.
As the depreciable year N-
we can use the formula above and calculate dk-$
amount through out the equipment's life span.
This would be a fixed
which is the difference
Now the book value at the end of year 1, BV, $
between the cost basis and the depreciation.
The book values for the remaining six years, your BV, BV1-d, meaning the book value should keep decreasing at the end of every year/period. The
calculation will have to base on the previous year's book value instead of the cost basis at the beginning. As we demonstrated in class, you can calculate the BV
in Excel and write their values below:
• BV₂=5
BV, S
• BV S
• BV, $
• BV=S
this value should be the same as SV
• BV, S
#
Transcribed Image Text:1. Tangible, e.g can be seen or touched by individuals; services cannot be depreciated; and 2. Continuing in service, e.g. has a depreciation schedule; one time used consumable cannot be depreciated. Depreciation Model 1-Straight line: Constant amount of depreciation each year or period over the depreciable life of the asset. d, (B-SV)/N, where N. depreciable life; B: cost basis; de depreciation in year/period k BV: book value at the end of k; and SV salvage value. Scenario Acme purchased a coordinate measurement machine (CMM). The cost basis is $120,000 and it has a seven year depreciable life. Acme estimates a salvage value of $22,000 at the end of seven years. Determine the annual depreciation amounts using SL depreciation. Solution In this scenario, the cost basis B-5 This is your initial spending at the beginning of year 1, which will be reported as part of your asset. Salvage value SV-$ This is the end value of this equipment at the end of year seven, meaning you could sell the used machine and get the money back. This will be reported as your income, but the same dollar amount would be removed from your asset. As the depreciable year N- we can use the formula above and calculate dk-$ amount through out the equipment's life span. This would be a fixed which is the difference Now the book value at the end of year 1, BV, $ between the cost basis and the depreciation. The book values for the remaining six years, your BV, BV1-d, meaning the book value should keep decreasing at the end of every year/period. The calculation will have to base on the previous year's book value instead of the cost basis at the beginning. As we demonstrated in class, you can calculate the BV in Excel and write their values below: • BV₂=5 BV, S • BV S • BV, $ • BV=S this value should be the same as SV • BV, S #
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