A. Alex purchased a CNC machine on 1st October 2019 at a cost of $110,000 (including GST). This machinery is estimated to have a useful life of seven years. B. Alex purchased a Holden car on 1 May, 2019 at a cost of $63,000, estimated to have a useful life of five years. Required: With reference to relevant legislation and case law, discuss and calculate what amount is allowed as a deduction for the decline in value of the machinery and the Holden car discussed above, using both prime cost and diminishing value methods.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
A. Alex purchased a CNC machine on 1st October 2019 at a cost of $110,000 (including GST). This
machinery is estimated to have a useful life of seven years.
B. Alex purchased a Holden car on 1 May, 2019 at a cost of $63,000, estimated to have a useful
life of five years.
Required:
With reference to relevant legislation and case law, discuss and calculate what amount is allowed as
a deduction for the decline in value of the machinery and the Holden car discussed above, using both
prime cost and diminishing value methods.
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