A machine purchased by the Hubalol Company originally cost $245,000. Delivery and installation charges amounted to $5000. The declared salvage value was $25,000; useful life of the machine was 12 years. At the end of Year 4, the company changed its product mix and found that it no longer needed the machine. One of its competitors agreed to buy the machine for $90,000. Compute the book value of the machine at end of Year 4 and determine the loss or gain of depreciation on the sale using: a. Straight-Line Method b. Sinking fund at 8%
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 machine purchased by the Hubalol Company originally cost $245,000.
Delivery and installation charges amounted to $5000. The declared salvage
value was $25,000; useful life of the machine was 12 years. At the end of Year
4, the company changed its product mix and found that it no longer needed the
machine. One of its competitors agreed to buy the machine for $90,000.
Compute the book value of the machine at end of Year 4 and determine the
loss or gain of depreciation on the sale using:
a. Straight-Line Method
b. Sinking fund at 8%
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