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A machine costs $800,000 on April 1, 2017. Its estimated salvage value is $90,000 and its...

A machine costs $800,000 on April 1, 2017. Its estimated salvage value is $90,000 and its expected life is eight years. It cost the company $100,000 to install and make the machine ready for full use. Record the depreciation expense by using straight-line for 2017.

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Answer #1

Cost of a capital asset includes all costs incurred to bring the asset to its present location and condition. So, Installation costs of $100,000 will also be capitalized with the cost of the asset for depreciation calculation

Depreciation under straight-line method

= (Purchase cost + Installation cost – Salvage value) / Useful life x Number of months used / 12 months

Number of months used is from April 1, 2017 to December 31, 2017 = 9 months

So, Depreciation for 2017

= ($800,000 + $100,000 - $90,000) / 8 x 9 / 12

= $ 75,937.5

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