Question

Module 19: Capitalization and Depreciation

1. What are the differences in how depreciation is treated by government and by companies in the private sector?
2. A city government purchases a new garbage truck for $120,000 this year. It is estimated that the truck will have a residual value of $20,000 and a useful economic life of 20 years. What would be the depreciation expense each year if the straight-line method were used.
3. Why do organizations, government included, not capitalize all assets that last for more than one budgeting period, despite knowing that doing so would increase the accuracy of the accounting of assets and operations?
4. City Hospital paid $500,000 for a piece of advanced diagnostic equipment. The total transportation and installation cost to make the equipment operational is $50,000. The staff-training cost to operate the new equipment is about $10,000. What should be the value of this capital asset
5. PLS WORK OUT IN SPREAD SHEET

Answer 1

City government purchases a truck for $120000 having residual value of $20000 and life of 20 yrs. Depreciation on the basis of straight line methodl shall be:

120000-20000/20=$5000 per year.

All organizations including govt treat the use of asset for short period which gave benifit for short period of time and treat it as revenue expenditure for saving taxes whuch is wrong practice .

For city hospital, value of asset shall be $500000+$50000=$550000

Installation and transportation cost shall also be capitalized and shall be included in cost of asset.

Further training cost to operate asset shall be claimed as revenue expenditure.