X Company has purchased a Rocket for $8,000 to use in their Pokemon capturing business. The Rocket is being depreciated with a straight line depreciation schedule of four years. The market value of the rocket drops 20% every year. The rocket has an annual O&M cost which is $3,000 in year 1 and which increases by 10% every year. If the annual income tax of the company is 40% and the annual after-tax MARR of company is 9%, what is the EUAC of the rocket in its economic life?
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.
X Company has purchased a Rocket for $8,000 to use in their Pokemon capturing business. The Rocket is being
Step by step
Solved in 2 steps with 3 images
