Josiah Co acquired a new machine. Details of the acquisition are as follows: Purchase price including VAT 1,568,000 Cost of water device to keep machine cool 8,000 Cost of safety rail and platform surrounding machine 12,000 Installation cost, including site preparation and assembling 20,000 Fees paid to consultants for advice on acquisition of the machinery 13,000 Present value of the estimated dismantling cost of the new machine 10,000 Repair cost of the machine damaged while in the process of installation 5,000 Loss on premature retirement-old machine 18,000 Other nonrefundable sales tax 13,000 Cost of training for personnel who will use the machine 25,000 Cost of removing old machine 10,000 Determine the cost of the Machinery
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.
Josiah Co acquired a new machine. Details of the acquisition are as follows:
Purchase price including VAT 1,568,000
Cost of water device to keep machine cool 8,000
Cost of safety rail and platform surrounding machine 12,000
Installation cost, including site preparation and assembling 20,000
Fees paid to consultants for advice on acquisition of the machinery 13,000
Present value of the estimated dismantling cost of the new machine 10,000
Repair cost of the machine damaged while in the process of installation 5,000
Loss on premature retirement-old machine 18,000
Other nonrefundable sales tax 13,000
Cost of training for personnel who will use the machine 25,000
Cost of removing old machine 10,000
Determine the cost of the Machinery
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