A certain corn mill decide to sell its old engine which had been used for 5 years costing 7,200 new. The average operating cost per year thus far have been 4,200. The replacement costing 1200 has an estimated life of 15 years, and an estimated annual operating expenses 20% lower than the old engine. If the interest is 5% and using straight line depreciation, how much should the old engine be sold if its working life and its salvage value have been assumed 15 years and 500 respectively. Actual total cost for the new engine considering depreciation, interest, and operation is 347 less than that of the old.
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.
A certain corn mill decide to sell its old engine which had been used for 5 years costing 7,200 new. The average operating cost per year thus far have been 4,200. The replacement costing 1200 has an estimated life of 15 years, and an estimated annual operating expenses 20% lower than the old engine. If the interest is 5% and using straight line
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