The Souvenir Company purchased, on 1 January 2015, a machine producing embossed souvenir badges. The machine cost £32,000 and was estimated to have a five-year life with a residual value of £2,000. The company plans on using one out of the two most important methods of deprecation which are straight line & Written down value methods. The CEO wants to decide on which method based on a few calculations that he asks you to perform which are given below. Prepare the required calculations to help the CEO arrive at a final decision. Required (a) Prepare a table of depreciation and net book values over the five-years using straight-line depreciation.
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.
The Souvenir Company purchased, on 1 January 2015, a machine producing embossed
souvenir badges. The machine cost £32,000 and was estimated to have a five-year life with
a residual value of £2,000. The company plans on using one out of the two most important
methods of deprecation which are straight line & Written down value methods. The CEO
wants to decide on which method based on a few calculations that he asks you to perform
which are given below. Prepare the required calculations to help the CEO arrive at a final
decision.
Required
(a) Prepare a table of
depreciation.
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