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suppose that depreciation amount is being charged 5000 on a machine costing 100000 in current year.my question is that according to the definition of depreciation what amount will be allocated between both of them, given above.
? Related: Depreciation (Part - 1)
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suppose that depreciation amount is being charged 5000 on a machine co...
Depreciation Allocation Calculation
Depreciation is the gradual decrease in the value of an asset over time due to wear and tear, obsolescence, or other factors. It is an important concept in accounting as it helps to allocate the cost of the asset over its useful life. In this case, the machine is being charged a depreciation amount of $5000 in the current year. To determine the amount allocated between the machine and depreciation, we need to consider the cost of the machine and its useful life.
Cost of the Machine:
The cost of the machine is given as $100,000. This is the original purchase price of the machine.
Useful Life of the Machine:
The useful life of the machine is an estimate of how long the machine is expected to be economically useful. It is typically determined by the management based on their experience and industry standards. Let's assume the useful life of the machine is 10 years.
Depreciation Calculation:
To calculate the annual depreciation expense, we divide the cost of the machine by its useful life:
Depreciation Expense = Cost of the Machine / Useful Life
Depreciation Expense = $100,000 / 10 years
Depreciation Expense = $10,000 per year
Depreciation Allocation:
In this case, the depreciation amount being charged is $5000 in the current year. To determine the amount allocated between the machine and depreciation, we need to compare the depreciation expense for the current year with the total depreciation expense over the useful life of the machine.
Depreciation Allocation = (Depreciation Expense for Current Year / Total Depreciation Expense) * Depreciation Amount
Depreciation Allocation = ($10,000 / $100,000) * $5,000
Depreciation Allocation = 0.1 * $5,000
Depreciation Allocation = $500
Conclusion:
According to the definition of depreciation, $500 will be allocated between the machine and depreciation in the given scenario. This allocation is based on the ratio of the depreciation expense for the current year to the total depreciation expense over the useful life of the machine.
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suppose that depreciation amount is being charged 5000 on a machine costing 100000 in current year.my question is that according to the definition of depreciation what amount will be allocated between both of them, given above. Related: Depreciation (Part - 1)?
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