Brazil Group purchases a vehicle at a cost of $50,000 on January 2, 2017. Individual components of the vehicle and useful lives are as follows. Cost Useful Lives Tires $ 6,000 2 years Transmission 10,000 5 years Trucks 34,000 10 years Instructions(Assume no residual (salvage) value.)(a) Compute depreciation expense for 2017, assuming Brazil depreciates the vehicle as a single unit.(b) Compute depreciation expense for 2017, assuming Brazil uses component depreciation.(c) Why might a company want to use component depreciation to depreciate its assets?
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.
Brazil Group purchases a vehicle at a cost of $50,000 on January 2, 2017. Individual components of the vehicle and useful lives are as follows.
| Cost | Useful Lives | |
| Tires | $ 6,000 | 2 years |
| Transmission | 10,000 | 5 years |
| Trucks | 34,000 | 10 years |
Instructions
(Assume no residual (salvage) value.)
(a) Compute
(b) Compute depreciation expense for 2017, assuming Brazil uses component depreciation.
(c) Why might a company want to use component depreciation to depreciate its assets?
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