Question

Polar & Hnter Lid, a sportswenr manifictrer sht Line basis over 1 The company's policy is to depreciate its Scrap salvage) value is estimated at 5% ofthe orinal cost of the machine. Depreciation is charged from the date of purchase to the date of sale nrepares its final accounts to 31 December each year On 01/01/2013, Polar& Hunter Ltd owned the following machines: No. I purchased on 01/07/2010 for $50.000 No, 2 purchased on 01/09/2011 for $65.000 No. 3 purchased on 01/01/2012 for $75.000 On 01/03/2013, Machine No. I was ruined by a malfunction which completely destroyed the motor sensor. On the same date a new machine, No 4. was purchased to replace Machine No 1, at a cost of $60.000. Calculate the Depreciation charge of each machine for the years 2010, 2011. 2012, and 2013 AREFUL: CALCULATION SHOULD BE MADE BASED ON THE USAGE. IN SOME CASES, MACHINES ARE NOT USED FOR THE FULL YEAR

engineering economics
Can you solve step to step.
not table .

Answer 1

As per the question Accounting year is from 1st January - 31st December.

Calculation for Machine 1 $\rightarrow$

• purchased on 1/7/2010 so in year 2010 usage period is = 6 months
• Original Cost - 50000
• Scrap Value = 5% of original cost= 2500
• Depreciation amount = (Original cost - Scrap Value)/ Total no of years to be used ........(i)

This is = (50000 - 2500 )/10 = 4750 for full year or 12 months.

Therefore, Depreciation charged for the year 2010 is 4750/12 x 6 = 2375 ( charged for 6 months)

Depreciation charged for the year 2011 = 4750 (full amount)

Depreciation charged for the year 2012 = 4750 (full amount)

Depreciation charged for the year 2013 = 4750/12 x 2 = 792

( charged for 2 months as it was replaced by Machine 4 on 1st march)

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Calculation for Machine 4  $\rightarrow$

• Original Cost - 60000
• Scrap Value = 5% of original cost= 3000

Using formula from equation (i)

Depreciation amount = (60000-3000)/10 = 5700 for 12 months.

However in 2013 this machine was used for only 9 months, therefore

Depreciation charged for the year 2013 = 5700/12 x 9 = 4275

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Calculation for Machine 2 $\rightarrow$

• purchased on 1/9/2011 so in year 2011 usage period is 3 months.
• Original cost = 65000
• Scrap Value = 5% of original cost = 3250

Using formula from equation (i)

Therefore Depreciation amount = (65000-3250)/10 = 6175 for 12 months.

Depreciation charged for the year 2011 = 6175/12 x 3 = 1543.75 ( charged for 3 months)

Depreciation charged for the year 2012 = 6175 (full amount)

Depreciation charged for the year 2013 = 6175 (full amount)

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Calculation for Machine 3  $\rightarrow$

• purchased on 1/1/2012 so in year 2012 usage period is full year.
• Original cost = 75000
• Scrap Value = 5% of original cost = 3750

Using formula from equation (i)

Therefore Depreciation amount = (75000-3750)/10 = 7125 for 12 months.

Depreciation charged for the year 2012 = 7125 (full amount)

Depreciation charged for the year 2013 = 7125 (full amount)

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