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Concept Introduction:
This is one of the methods to calculate the depreciation on assets. Under this method the
Requirement-1:
To Calculate:
The amount of depreciation expenses for the year 2020
Answer to Problem 10SP
The amount of depreciation expenses for the year 2020 are as follows:
| Depreciation Expense- Office Equipment for the year 2020 | $ 400 |
| Depreciation Expense- Computer Equipment for the year 2020 | $ 1,250 |
Explanation of Solution
The amount of depreciation expenses for the year 2020 are calculated as follows:
| $ 400 | |
| Accumulated Depreciation- Office Equipment as on Dec. 31, 2020 (B) | $ 800 |
| Depreciation Expense- Office Equipment for the year 2020 (B-A) | $ 400 |
| Accumulated Depreciation- Computer Equipment as on Dec. 31, 2019 (A) | $ 1,250 |
| Accumulated Depreciation- Computer Equipment as on Dec. 31, 2020 (B) | $ 2,500 |
| Depreciation Expense- Computer Equipment for the year 2020 (B-A) | $ 1,250 |
Concept Introduction:
Straight line method of depreciation:
This is one of the methods to calculate the depreciation on assets. Under this method the depreciable value of asset it divided equally for each year f its estimated life. The formula to calculate the deprecation under straight line method is as follows:
Requirement-2:
To Calculate:
The book value of the assets as on Dec. 31, 2020
Answer to Problem 10SP
The book value of the assets as on Dec. 31, 2020 is as follows:
| Book value of Office Equipment as on Dec. 31, 2020 | $ 7,200 |
| Book value of Computer Equipment as on Dec. 31, 2020 | $ 17,500 |
Explanation of Solution
The book value of the assets as on Dec. 31, 2020 is calculated as follows:
| Office Equipment (A) | $ 8,000 |
| Accumulated Depreciation- Office Equipment as on Dec. 31, 2020 (B) | $ 800 |
| Book value of Office Equipment as on Dec. 31, 2020 (B-A) | $ 7,200 |
| Computer Equipment (A) | $ 20,000 |
| Accumulated Depreciation- Computer Equipment as on Dec. 31, 2020 (B) | $ 2,500 |
| Book value of Computer Equipment as on Dec. 31, 2020 (B-A) | $ 17,500 |
Concept Introduction:
Straight line method of depreciation:
This is one of the methods to calculate the depreciation on assets. Under this method the depreciable value of asset it divided equally for each year f its estimated life. The formula to calculate the deprecation under straight line method is as follows:
Asset Turnover Ratio:
Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:
Requirement-3:
To Calculate:
The Asset turnover ratio for the period of three months
Answer to Problem 10SP
The Asset turnover ratio for the period of three months shall be 0.43 which below the industry average.
Explanation of Solution
The Asset turnover ratio for the period of three months is calculated as follows:
| Net Sales (A) | $ 44,000 |
| Beginning Total Assets (B) | $ 83,460 |
| Ending Total Assets (C) | $ 120,265 |
| Average Total Assets (D) = (A+B)/2 = | $ 101,863 |
| Total Asset Turnover (A/B) | 0.43 |
Total Asset Turnover for three months period is 0.43, hence one year Total Asset Turnover shall be 0.43*12/3 = 1.72
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