Required (i) Calculate the depreciation charge per 100 ml hand sanitizer. (ii) Prepare a depreciation schedule for this machinery using the units of production approach.
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.
Dettol Limited bought a machinery of Sh. 25 million The Machinery is expected to package 50 million 100 ml hand sanitizers during its life time and has a salvage value of Sh. 2.5 million.
For the ten years, the schedule of actual production is as follows;
|
Year |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
Total |
|
Units produced “million” |
7.9 |
7.2 |
6.6 |
5.5 |
4.8 |
4.0 |
3.7 |
3.6 |
3.5 |
3.2 |
50 |
Required
(i) Calculate the
(ii) Prepare a depreciation schedule for this machinery using the units of production approach.
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