Question

A factory purchased an engine for their production. Given the information below, how much depreciation will...

A factory purchased an engine for their production. Given the information below, how much depreciation will the factory expense each year? Show your work and explain your answer.

purchase date: 1/1

Cost: $100,000

Shipping: $5,000

Salvage Value of the Engine: $15,000

Useful life of the Engine: 5 years

Rent expense to keep it in the factory: $10,000

Business   Accounting   
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Answer #1

The amount chargeable as annual depreciation is $18,000

Calculation is as follows;

Purchase Cost of engine

$1,00,000

+ Shipping

$5,000

- Salvage value of asset

$15,000

Depreciable value of Engine

$90,000

Useful life (in years)

5

Annual Depreciation

$18,000

Notes;

  • Any costs which are incurred directly towards installation of an asset including shipping costs will be capitalized and included in the cost of the asset.
  • Rent for building is revenue in nature so it shall not be included with the cost of the aseet.
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