Miguel Rodriguez of MARIO, S.A., an Uruguayan corporation, is computing the depreciationexpense of a piece of manufacturing equipment for the fiscal year ended 31 December 2009.Th e equipment was acquired on 1 January 2009. Rodriguez gathers the following information(currency in Uruguayan pesos, UYP):Cost of the equipment UYP 1,200,000Estimated residual value UYP 200,000Expected useful life 8 yearsTotal productive capacity 800,000 unitsProduction in FY 2009 135,000 unitsExpected production for the next 7 years 95,000 units each year7. If MARIO uses the straight-line method, the amount of depreciation expense onMARIO’s income statement related to the manufacturing equipment is closest to:A. 125,000.B. 150,000.C. 168,750.
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.
Miguel Rodriguez of MARIO, S.A., an Uruguayan corporation, is computing the
expense of a piece of manufacturing equipment for the fiscal year ended 31 December 2009.
Th e equipment was acquired on 1 January 2009. Rodriguez gathers the following information
(currency in Uruguayan pesos, UYP):
Cost of the equipment UYP 1,200,000
Estimated residual value UYP 200,000
Expected useful life 8 years
Total productive capacity 800,000 units
Production in FY 2009 135,000 units
Expected production for the next 7 years 95,000 units each year
7. If MARIO uses the straight-line method, the amount of depreciation expense on
MARIO’s income statement related to the manufacturing equipment is closest to:
A. 125,000.
B. 150,000.
C. 168,750.
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