Mandala Company acquired a new milling machine on April 1, 2008. The machine has a special component that required replacement before the end of the useful life. The asset was originally recorded in two accounts, one representing the main unit and the other for the special component. Depreciation is recorded by the straight line method and residual value is disregarded. On April 1, 2014, the special component is scrapped and is replaced with a similar component. This new component is expected to have a residual value of approximately 20% of cost at the end of the useful life of the main unit, and because of materiality, the residual value will be considered in calculating depreciation. Main milling machine: Purchase price in 2008 Residual Value 7,500,000 100,000 Estimated useful life 10 years First special component Purchase price Residual Value 1,200,000 60,000 Estimated useful life 6 years Second special component Purchase price 2,000,000 Residual Value (20% x 2,000,000) 400,000 What is the total depreciation for 2014?

Mandala Company acquired a new milling machine on April 1, 2008. The machine has a special component that required replacement before the end of the useful life. The asset was originally recorded in two accounts, one representing the main unit and the other for the special component. Depreciation is recorded by the straight line method and residual value is disregarded. On April 1, 2014, the special component is scrapped and is replaced with a similar component. This new component is expected to have a residual value of approximately 20% of cost at the end of the useful life of the main unit, and because of materiality, the residual value will be considered in calculating depreciation. Main milling machine: Purchase price in 2008 Residual Value 7,500,000 100,000 Estimated useful life 10 years First special component Purchase price Residual Value 1,200,000 60,000 Estimated useful life 6 years Second special component Purchase price 2,000,000 Residual Value (20% x 2,000,000) 400,000 What is the total depreciation for 2014?

Name: Mandala Company acquired a new milling machine on April 1, 2008. The
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Description: Mandala Company acquired a new milling machine on April 1, 2008. The machine has aspecial component that required replacement before the end of the useful life. The assetwas originally recorded in two accounts, one representing the main unit and the

FINANCIAL ACCOUNTING

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ISBN:9781259964947

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Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Concept explainers

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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Question

Mandala Company acquired a new milling machine on April 1, 2008. The machine has a
special component that required replacement before the end of the useful life. The asset
was originally recorded in two accounts, one representing the main unit and the other for
the special component. Depreciation is recorded by the straight line method and residual
value is disregarded. On April 1, 2014, the special component is scrapped and is replaced
with a similar component. This new component is expected to have a residual value of
approximately 20% of cost at the end of the useful life of the main unit, and because of
materiality, the residual value will be considered in calculating depreciation.
Main milling machine:
Purchase price in 2008
7,500,000
100,000
10 years
Residual Value
Estimated useful life
First special component
Purchase price
1,200,000
Residual Value
60,000
Estimated useful life
6 years
Second special component
Purchase price
2,000,000
Residual Value (20% x 2,000,000)
400,000
What is the total depreciation for 2014?
Your answer

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