Question

Fixed Asset Discussion:

1. Identify a type of company in your pathway that might purchase fixed assets (see suggestions below).
2. List 5 fixed assets that they might purchase to run their business.
3. Select one depreciable fixed asset. Based on research suggest what the cost, residual value and estimated life might be for that fixed asset.
4. Using your assumptions above, calculate:
   1. Straight-line depreciation and book value for each of the first two years
   2. Declining Balance depreciation and book value for each of the first two years
   3. Units of Production depreciation (make assumptions about the first two year’s use), and book value for each of the first two years.
5. Suggest which depreciation method might be more appropriate and why.

Post your answer to the questions. Reply to at least two of your classmates' posts, commenting on the different types of fixed assets that are required for the type of business that they selected and the recommended depreciation method. Each reply must be at least 5 sentences long, detailed, and thorough.

Examples of sectors/industries in pathways could be:

• AHCD: Media, Dance, Theater, Film production, Graphics design or Architecture
• Business: Tourism/Leisure, Telecommunications, Retailers, Computers, Equipment, Food and Beverage Products, Real Estate, Technology Hardware, Toys, Commercial Services, Financial Services, any business is acceptable
• Education: Non-Profit Services, Public Agency, Child care, Charter schools, Universities
• Health Sciences: Health Care Services, Healthcare Products, Hospital, Household Products, Chemicals
• IMCT: Aviation, Construction, Construction Materials, Logistics, Automotive, Mining
• Public Safety:   Equipment providers for the industry, Public Agency, Non-Profit Services
• STEM: Engineering, Computers. Chemicals, Energy, Energy Utilities, Technology Hardware
• SGSHS: Healthcare Services, Non-Profit Services, Media, Public Agency

Answer 1

Business: Food and Beverage Products

5 Fixed Assets to run the business:

1. Land
2. Building
3. Kitchen Equipment
4. Vehicles
5. Furniture

A Depreciable Fixed Asset: Kitchen Equipment

Assumptions:

Cost: $1,10,000

Residual Value: $5000

Useful Life: 12 Years

Total units of production over useful life : 1500M

Units of Production Year 1 : 100M

Units of Production Year 2 : 120M

Calculation of Depreciation and Book Values:

Straight Line Depreciation
=(Cost-Residual Value)/useful Life
=(110000-5000)/12
$8,750
Year	Opening Book Value	Depreciation	Closing Book Value
1	$1,10,000	$8,750	$1,01,250
2	$1,01,250	$8,750	$92,500
Declining Balance Depreciation
Rate=1-[(Residual Value/Cost)^(1/useful life)]
=1-[(5000/110000)^(1/12)]
22.71%
Year	Opening Book Value	Depreciation	Closing Book Value
1	$1,10,000	$24,979.41	$85,020.59
2	$85,020.59	$19,306.95	$65,713.65
Units of Production Depreciation
Depreciation=(Cost-Residual value)*Units of Production/Total estimated units of production
Year 1	=(110000-5000)*100/1500	7000
Year 2	=(110000-5000)*120/1500	8400
Year	Opening Book Value	Depreciation	Closing Book Value
1	$1,10,000	$7,000	$1,03,000
2	$1,03,000	$8,400	$94,600

Suggestion: Units of Production method may be more appropriate as it considers units produced and so cost of asset is allocated over the years based on units produced.Asset gets depreciated mostly due to it's usage. Thus this method is more appropriate which allocates the cost based on usage.