Instructions: What is the cost allocated to grade C lots
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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.
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Woodland Developers purchases land for $1.5 million that it will subdivide into 400 lots. These lots are of different sizes and shapes but can be roughly sorted into three groups graded A, B, and C. As Woodland sells the lots, it apportions the purchase cost of $1.5 million among the lots sold and the lots remaining on hand. Instructions: What is the cost allocated to grade C lots, assuming that grade A estimated sales value $1,000,000, grade B estimated sales value $900,000, and grade C estimated sales value $600,000? (Please write your answer without commas or sign of the dollar. For example, if your answer is $10,000, write it 10000)
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