Question

Don, Inc., a tire manufacturer bought a new grinding machine for $510,000. How much of the cost of the grinding machine can Don expense in 2018 before computing depreciation?

Answer 1

A long lived asset is any asset that a business expects to use for more than one accounting period. In other words, it is an assets which provides future economic benefits to the entity for more than one accounting periods Long lived assets are usually classified into two subcategories, which are:

• Tangible long lived assets: e.g furniture and fixtures, manufacturing equipment, buildings, vehicles, and computer equipment.
• Intangible long lived assets. e.g. copyrights, patents, and licenses.

In above question, if Don Inc expect to use grinding machine for more than one year and it is probable that future economic benefit will flow to the entity. It will be depreciated over it''s useful life.

Initially, at the time of recognition of grinding machine, total amount of $ ,510000 will be capitalised. Hence, no cost will be expensed in 2018 before computing depreciation.