Scott Smith just bought a new “StreamLink” machine which will be depreciated on a straight-line basis to a book value of $73,000 at the end of its four-year life. During the first two years, the net income associated with the machine is expected to be $15,700 and $18,300, respectively. During the last two years, the net income associated with the equipment is expected to be $23,800 and $15,600, respectively. What is the average-accounting return associated with the “StreamLink” machine? Please note that Scott paid $184,000 for the machine. a. 7.98% b. 14.28% c. 19.95% d. 17.62% e. 15.30%
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.
Scott Smith just bought a new “StreamLink” machine which will be
a. 7.98%
b. 14.28%
c. 19.95%
d. 17.62%
e. 15.30%
Accounting rate of return is a tool that describes how much an organization is generating from its investment.
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