Finch, Inc., has purchased a new server and must decide what to do with the old one. The cost of the old server was originally $60,000 and has been depreciated $45,000. The company has received two offers. One offer was to lease the equipment for $7,000 for the next five years, but the company will be required to provide maintenance and insurance totaling $3,000 per year. The other offer was made to purchase the equipment outright for $18,500 less a 5% sales commission. Prepare a differential analysis. If required, use a minus sign to indicate a loss. Differential Analysis Lease (Alternative 1) or Sell (Alternative 2) Server Lease Server (Alternative 1) Sell Server (Alternative 2) Differential Effects (Alternative 2) Revenues $fill in the blank 1 $fill in the blank 2 $fill in the blank 3 Costs fill in the blank 4 fill in the blank 5 fill in the blank 6 Profit (loss) $fill in the blank 7 $fill in the blank 8 $fill in the blank 9
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.
Finch, Inc., has purchased a new server and must decide what to do with the old one. The cost of the old server was originally $60,000 and has been depreciated $45,000. The company has received two offers. One offer was to lease the equipment for $7,000 for the next five years, but the company will be required to provide maintenance and insurance totaling $3,000 per year. The other offer was made to purchase the equipment outright for $18,500 less a 5% sales commission.
Prepare a differential analysis. If required, use a minus sign to indicate a loss.
| Differential Analysis Lease (Alternative 1) or Sell (Alternative 2) Server |
|||
| Lease Server (Alternative 1) |
Sell Server (Alternative 2) |
Differential Effects (Alternative 2) |
|
| Revenues | $fill in the blank 1 | $fill in the blank 2 | $fill in the blank 3 |
| Costs | fill in the blank 4 | fill in the blank 5 | fill in the blank 6 |
| $fill in the blank 7 | $fill in the blank 8 | $fill in the blank 9 |
Which offer should Finch, Inc., accept?
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