New product tracking equipment costs $120,000 and will have a $10,000 salvage value when disposed of in 10 years. Annual repair costs begin at $5000 in the fifth year and increase by $500 per year thereafter until disposed of. If interest is 10%, what is the closest equivalent annual cost of ownership? (a) $21,505 (b) $21,766 (c) $21,844 (d) $23,109?
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.
New product tracking equipment costs $120,000 and will have a $10,000 salvage value when disposed of in 10 years. Annual repair costs begin at $5000 in the fifth year and increase by $500 per year thereafter until disposed of. If interest is 10%, what is the closest equivalent annual cost of ownership? (a) $21,505 (b) $21,766 (c) $21,844 (d) $23,109?
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