Question

Question 1:

Company "Sharon" was founded on January 1st, 2009 and operates in the field of manufacturing and distributing office furniture.

On January 1st, 2010 the company purchased the following assets:

• A building for $55,000. The company spent an additional $5,000 on new paint for the building. The company also spent $15,000 in installing an elevator in the building (that did not have one before). The building is depreciated using the Straight-Line Method, its useful life is 30 years and it has a salvage value of $10,000.

• A machine for $21,000. The amount paid includes $1,000 for delivery of the machine. The salvage value of the machine is $2,000 and its useful life is 10 years. The machine was sold on Dec 31st ,2012 for $14,200.

  On January 1st, 2011, the company purchased an electronic operating system. The depreciation expense for the system for the first 12 months of operation is $1,000 (Depreciation expense for 2011). The company uses the double declining balance depreciation method to depreciate the system. The system's useful life is 7 years and it has no salvage value.

  Required

  1. [A] What is the depreciation expense for 2012 for each of the assets above?

  2. [B] What are the two long-term operating assets' categories? What are the characteristics of each category?

  3. [C] Provide 3 examples of each of the categories specified in your answer to section B.

Answer 1

Depreciation for Building is $ 2166 (55000+5000+15000-10000)/30years

Depreciation for Machine is $ 1900 as sold on last day of Financial year (21000-2000)/10 years

depreciation on electronic operating system will be $714 (cost = 1000/ (1/7*2))

(b) two types of assets

1. tangible

2. intangible

tangible assets has its own physical substance on other hand intangible assets doesn’t have its own physical substance.

(c)

eg

tangible assets = Buildings, furniture, Machinery

intangible assets = Goodwill, patent , copyright and brand value.