Question

Identify a type of company in your pathway that might purchase fixed assets (see suggestions below)....

Identify a type of company in your pathway that might purchase fixed assets (see suggestions below). List 5 fixed assets that they might purchase to run their business. Select one depreciable fixed asset. Based on research suggest what the cost, residual value and estimated life might be for that fixed asset. Using your assumptions above, calculate: Straight-line depreciation and book value for the first two years Declining Balance depreciation and book value for the first two years Units of Production depreciation (make assumptions about the first two year’s use), and book value for the first two years. Suggest which depreciation method might be more appropriate and why.

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Lets take a example of company XYZ who is into textile manufacturing business, 5 fixed assets that they might purchase to run their business are-

Building

Machinery

Computers and hardware

Office furniture

Land

Lets take machinery for further explanation of different types of depreciation method

Cost of Machinery - $ 55,00,000

Residual value - $ 5,00,000

Expected Production - 2,00,000 - for First Year 40000, Second Year 30000 ( For Units of Production method)

1. SLM

Year Beginning Book Vale Annual Depreciation Book value at end
1 $5500000 $1000000 $4500000
2 $4500000 $1000000 $3500000

Annual Depreciation = Cost of Machinery - Residual Value / Life of Machinery

   $55,00,000 - $5,00,000 / 5 = $10,00,000

Depreciation Rate = $10,00,000 / $50,00,000 = 20%

2. WDV

Year Beginning Book Vale Rate of depreciation Annual depreciation Book value at end
1 $5500000 20% $1100000 $4400000
2 $4400000 20% $880000 $3520000

3. Unit of Production method

Year Beginning Book Vale Production Units % of units produced each year Annual depreciation Book value at end
1 $5500000 40000 20.00% $1000000 $4500000
2 $4500000 30000 15.00% $750000 $3750000

Annual Depreciation = Number of units in year / total expected number of units * (Cost of machine - Salvage Value)

   Year 1    40,000/2,00,000 * $50,00,000 = $1000000

   Year 2    30,000/2,00,000 * $50,00,000 = $ 750000

When we talk about the depreciation method, each method will result in same total amount of depreciation, its just that the amount of depreciation differs year to year on the basis of method applied

SLM method is most appropriate method as we can see from above calculation SLM charged the highest amount of depreciation in 2 years.

  

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Depreciable fixed assets of $2 million are to be used in a 5-year project. Your accountant...
Depreciable fixed assets of $2 million are to be used in a 5-year project. Your accountant uses straight-line depreciation to a terminal book value of $250,000 when the project ends in 5 years. The actual market value of the fixed assets when the project ends is only $150,000. If your tax rate is 35%, what is the after-tax cash flow from the salvage value of these fixed assets?
As of December 31, 2019, ABC Company owned the tangible fixed assets. These assets were equipment,...
As of December 31, 2019, ABC Company owned the tangible fixed assets. These assets were equipment, furniture, and a lorry. To depreciate the equipment and furniture, ABC Company used straight-line method. On the other hand, to depreciate lorry, ABC Company used double-declining balance method. To depreciate these assets, ABC Company used depreciation for fractional years rounded to the nearest whole month. The details of these assets were as follows: Purchase Date Original Cost Residual value Useful life Lorry February 28,...
1. Long-term or relatively permanent assets such as equipment, machinery, buildings, and land. They exist physically;...
1. Long-term or relatively permanent assets such as equipment, machinery, buildings, and land. They exist physically; they are owned and used by the company in its normal operations; and they are not offered for sale as part of normal operations. a) What are intangible assets? b) What are current assets? c) What are short-term investments in marketable securities? d) What are fixed assets? 2. Costs that benefit only the current period. These costs include such items as ordinary repairs and...
A couple of years ago, the company Health4All purchased land, a building, and two depreciable assets...
A couple of years ago, the company Health4All purchased land, a building, and two depreciable assets from another corporation. All of these have recently been disposed. Use the information shown to determine the presence and amount of any capital gain, capital loss, or depreciation recapture. Asset Purchase Price, $ Recovery Period, Years Current Book Value, $ Sales Price, $ Land –210,000 - - 275,000 Building –800,000 27.5 260,000 255,000 Asset 1 –50,500 3 15,500 18,500 Asset 2 –10,000 3 5,000...
A couple of years ago, the company Health4All purchased land, a building, and two depreciable assets...
A couple of years ago, the company Health4All purchased land, a building, and two depreciable assets from another corporation. All of these have recently been disposed. Use the information shown to determine the presence and amount of any capital gain, capital loss, or depreciation recapture. Asset Purchase Price, $ Recovery Period, Years Current Book Value, $ Sales Price, $ Land –230,000 - - 280,000 Building –800,000 27.5 310,000 255,000 Asset 1 –50,500 3 15,500 24,500 Asset 2 –10,000 3 5,000...
A couple of years ago, the company Health4All purchased land, a building, and two depreciable assets...
A couple of years ago, the company Health4All purchased land, a building, and two depreciable assets from another corporation. All of these have recently been disposed. Use the information shown to determine the presence and amount of any capital gain, capital loss, or depreciation recapture. Asset Purchase Price, $ Recovery Period, Years Current Book Value, $ Sales Price, $ Land –240,000 - - 290,000 Building –800,000 27.5 300,000 255,000 Asset 1 –50,500 3 15,500 20,500 Asset 2 –10,000 3 5,000...
1. Gianina Company takes a full year’s depreciation in the year of an assets acquisition, and...
1. Gianina Company takes a full year’s depreciation in the year of an assets acquisition, and no depreciation in the year of disposition. Data relating to one depreciable asset acquired in 2003, with residual value of P900,000 and estimated useful life of 8 years, at December 31, 2004 are: Cost 9,900,000 Accumulated depreciation 3,750,000 Using the same depreciation method in 2003 and 2004, how much depreciation should Gianina record in 2005 for this asset? A. 1,125,000 C. 1,650,000 B. 1,250,000...
Please show your work! On January 1, Year 1, Beth Company paid $21,400 cash to purchase...
Please show your work! On January 1, Year 1, Beth Company paid $21,400 cash to purchase a equipment. The equipment was expected to have a ten year useful life and an $4,200 salvage value. If Beth uses the double declining balance method, the book value at the end of Year 1 is $_______ ====================== As part of a major renovation at the beginning of the year, Atiase Pharmaceuticals, Inc. sold shelving units (recorded as Equipment) that were 9 years old...
During the current year, Martinez Company disposed of two different assets. On January 1, prior to...
During the current year, Martinez Company disposed of two different assets. On January 1, prior to their disposal, the accounts reflected the following: Asset Original Cost Residual Value Estimated Life Accumulated Depreciation (straight-line) Machine A $ 84,700 $ 9,600 15 years $ 65,087 (13 years) Machine B 28,500 3,700 8 years 18,600 (6 years) The machines were disposed of in the following ways: Machine A: Sold on January 2 for $28,500 cash. Machine B: On January 2, this machine was...
Problem #6 Health Guard Labs, a pharmaceutical company, recently purchased a new pill dispensing machine. The...
Problem #6 Health Guard Labs, a pharmaceutical company, recently purchased a new pill dispensing machine. The purchase price was $24,500, the estimated residual value was $10,000, and the estimated useful life is five years. Additional expenditures during the first year of use were as follows: Sales tax Assembly Maintenance repairs Replacement parts New battery to increase energy efficiency $750 $450 $2,500 $3,600 $670 Instructions: 1. Determine the machine asset value at year end of year one. 2. Create a depreciation...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT