Determine the depreciation rate of the new rock crushing machine What is the Economic Life 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.
The company you work for is planning to buy a new rock crushing machine to replace an existing one. The purchase price of a new machine is $60,000. Estimates for the operating and maintenance (O&M) costs for the new machine are that it will be $4,500 the first year and will then increase $3,000 per year every year there after. The new machine follows a declining balance
Determine the depreciation rate of the new rock crushing machine
What is the Economic Life of the new machine and the minimum Equivalent Annual Cost (EAC)?
Show ALL your calculations to justify your answer.
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