Machine was purchased for 50000 installation expenses amounted to 2000...
Depreciation Calculation for a Machine
Initial Cost of Machine
- Machine purchase cost: $50,000
- Installation expenses: $2,000
- Wages paid on installation: $4,000
- Total cost: $56,000
Estimated Scrap Value
- Scrap value at the end of useful life: $6,000
Depreciable Amount
- Depreciable amount = Initial cost - Scrap value
- Depreciable amount = $56,000 - $6,000
- Depreciable amount = $50,000
Depreciation per year
- Straight-line depreciation method: Annual depreciation = Depreciable amount / Useful life
- Annual depreciation = $50,000 / 10 years
- Annual depreciation = $5,000
Repairs
- Repairs made after 6 months from purchase date: $6,000
- Repairs are not capitalized and do not affect the depreciable amount or useful life.
Journal Entries
- At the end of each year, record the depreciation expense:
- Depreciation Expense account: $5,000
- Accumulated Depreciation account: $5,000
Note: Depreciation is a non-cash expense that reflects the wear and tear of an asset over its useful life. The straight-line method assumes that the asset depreciates evenly over its useful life. Repairs and maintenance costs are not capitalized and do not affect the depreciable amount or useful life.
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