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1-Company Omega bought new petroleum refining equipment in the year 2000. The purchase cost was 166689...

1-Company Omega bought new petroleum refining equipment in the year 2000. The purchase cost was 166689 dollars and in addition it had to spend 19398 dollars for installation. The refining equipment has been in use since February 1st, 2000. Omega forecasted that in 2030 the equipment would have a net salvage value of $10,000. Using the US Straight Line Depreciation Schedule, estimate the value of depreciation recorded in the accounting books in the year 2004 if the company decided to sell the equipment on August 5th (of 2004).

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Answer #1

In straight line depreciation method the depreciation is calculated as (Total cost - Salvage value) / Useful life. The depreciation amount remains the same for each year. As per the depreciation schedule the depreciation allowed on petroleum refining equipments are for 20 years only with zero salvage value. Hence the estimated depreciation recorded in the books for 2004 will be:

Total cost = $166689 + $19398 = $186087

Salvage value = $0

Useful life = 20

Depreciation recorded each year = (209294 - 0) / 20 = $9304.35

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