On 1 January 20X4, Johnny Manufacturing Company purchased a new machine for $262,500 and paid freight charges of $7,500, installation cost of $15,000 and annual maintenance fee of $1,650.
Estimated useful life : 8 years
Scrap value : $21,384
Financial year ended on 31 December.
(a) Calculate the cost of the machine to be capitalised by Johnny Manufacturing Company.
(b) Calculate the annual depreciation on the machine for the years 20X4, 20X5, 20X6 if the company adopted the reducing balance method and a depreciation rate of 30 per cent per annum.
(c) Calculate the annual depreciation on the machine by using the straight line method.
- ?Lv 61 decade agoFavorite Answer
Since the cost of a fixed asset includes all cost necessary to get the fixed assets in place and ready for use, it should include freight charges and installation cost, but exclude annual maintenance fee
i.e. cost of the machines to be capitalized
= $262,500 + $7,500 + $15,000
By adopting the reducing balance method with depreciation rate of 30$ per annum
depreciation for the year 20X4 = $285,000 * .3 = $85,500
depreciation for the year 20X5 = ($285,000-$85,500) * .3 = $59,850
depreciation for the year 20X6 = ($285,000-$85,500-$59,850) * .3 = $41,895
Annual depreciation by using straight line method
= ($285,000-$21,384) / 8
- 1 decade ago
Can't you get the answer from the past paper?