Depreciation Choices and Outcome. Mulligan Co. purchased a new machine on January 1. The following information pertains to the purchase: Life of asset 5 years Salvage value $9,000 Purchase price 54,000 Sales tax 3,000 Freight cost 2,400 Electrical set-up 2,100 Custom programming 1,500 Estimated annual labor savings 10,500 Additional revenue generated 24,000 a. Determine the capitalized cost of the new machine $Answer b. Compute annual depreciation, accumulated depreciation and the machine's book value for the first three year assuming: i. Straight-line depreciation ii. Double-declining-balance method Straight-Line Depreciation Double-Declining Balance Depreciation Expense Accumulated Depreciation Book Value at Year-end Depreciation Expense Accumulated Depreciation Book Value at Year-End Year 1 Year 2 Year 3
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.
Mulligan Co. purchased a new machine on January 1. The following information pertains to the purchase:
| Life of asset | 5 years |
| Salvage value | $9,000 |
| Purchase price | 54,000 |
| Sales tax | 3,000 |
| Freight cost | 2,400 |
| Electrical set-up | 2,100 |
| Custom programming | 1,500 |
| Estimated annual labor savings | 10,500 |
| Additional revenue generated | 24,000 |
a. Determine the capitalized cost of the new machine
$Answer
b. Compute annual depreciation,
i. Straight-line depreciation
ii. Double-declining-balance method
| Straight-Line Depreciation | Double-Declining Balance | ||||||
|---|---|---|---|---|---|---|---|
| Depreciation Expense |
Accumulated Depreciation |
Book Value at Year-end |
Depreciation Expense |
Accumulated Depreciation |
Book Value at Year-End |
||
| Year 1 | |||||||
| Year 2 | |||||||
| Year 3 |
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