Miller Optometry is considering the purchase of a new lens grinder to replace a machine that was purchased several years ago. Selected information on the two machines is given below: old new orignal cost when new 80,000 85,000 accumulated depreciation to date 32,000 ------- current salvage value 26,000 ------ Annual operating cost 4,000 3,000 Remaining useful life 4 years 4 years Ignore income taxes and the time value of money in this problem. Required: Compute the total advantage or disadvantage of using the new machine instead of the old machine over the next four years.
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.
Miller Optometry is considering the purchase of a new lens grinder to replace a machine that was purchased several years ago. Selected information on the two machines is given below:
old new
orignal cost when new 80,000 85,000
current salvage value 26,000 ------
Annual operating cost 4,000 3,000
Remaining useful life 4 years 4 years
Ignore income taxes and the time value of money in this problem.
Required:
Compute the total advantage or disadvantage of using the new machine instead of the old machine over the next four years.
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