The Aghfa Id purchased new machinery for Rs 1,400,000 with 6years estimated useful life and no salvage value, on 1s July, 2015.It's a company policy to charge depreciation @ 15% on reducing balance method. The company got 5% discount on machine cost due to special efforts of purchase manager. An additional engineer is hired to operate such machine at salary of Rs.50, 000 pm. As machine was imported so import duty @ 2% is charged on net purchase price. Installation and other expenses were Rs.600, 000 and Rs.100, 000 respectively. After installment management conducts initial testing that was cost Rs.150, 000 and scrap from testing was realized for Rs.20, 000. Marketing department estimates Rs.200, 000 for the promotion of new product. Requirement: 1. Find total initial cost 2.Prepare the depreciation schedule.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
The Aghfa Id purchased new machinery for Rs 1,400,000 with 6years estimated useful life and
no salvage value, on 1s July, 2015.It's a company policy to charge
of purchase manager. An additional engineer is hired to operate such machine at salary of
Rs.50, 000 pm. As machine was imported so import duty @ 2% is charged on net purchase price.
Installation and other expenses were Rs.600, 000 and Rs.100, 000 respectively. After installment
management conducts initial testing that was cost Rs.150, 000 and scrap from testing was
realized for Rs.20, 000. Marketing department estimates Rs.200, 000 for the promotion of new
product.
Requirement:
1. Find total initial cost
2.Prepare the depreciation schedule.
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