Rk Co purchased a machine on 1st November 2020 at the cost of $110,000 (inclusive of GST) and exclusively used it to manufacture for the Co’s production. The machine’s effective life is ten years. Required: With reference to relevant legislation and case law, discuss and calculate what amount is allowed as a deduction for the decline in value of the machinery and the car discussed above, using both prime cost and diminishing value methods.
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.
Rk Co purchased a machine on 1st November 2020 at the cost of $110,000 (inclusive of GST) and exclusively used it to manufacture for the Co’s production. The machine’s effective life is ten years.
Required: With reference to relevant legislation and case law, discuss and calculate what amount is allowed as a deduction for the decline in value of the machinery and the car discussed above, using both prime cost and diminishing value methods.
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