On April!, 2004, a business purchased a machine costing $224 000. The machine has a life...
On April!, 2004, a business purchased a machine costing $224 000. The machine has a life expectancy of approximately 40 months. At the end of that time the machine is expected to have a trade-in value of $24 000. The financial year of the business ends on December 31, each year.
(i) Use the formula for calculating annual depreciation on the 'Straight-line Method' to determine the annual depreciation on the machine. ( 2 marks)
(ii) Calculate the depreciation charge at the end of the first year. ( 1 mark)
(iii) Show the depreciation account for the first two years.
Homework Answers
a) Annual depreciation = (Original Cost-salvage value)/Useful life = (224000-24000/40) = 5000*12 = 60000
b) Depreciation charge at the end of first year = 60000
c) T account
| Depreciation account | |||
| Dec 31 | 60000 | ||
| 12/31 Bal | 60000 | ||
| Dec 31 | 60000 | ||
| 12/31 Bal | 120000 | ||
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