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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Nature of depreciation

Tri-City Ironworks Co. reported $44,500,000 for equipment and $29,800,000 for accumulated depreciation—equipment on its balance sheet.

Does this mean (a) that the replacement cost of the equipment is $44,500,000 and (b) that $29,800,000 is set aside in a special fund for the replacement of the equipment? Explain.

(a)

To determine

Depreciation: It refers to the reduction in the monetary value of fixed tangible assets over its useful life due to its wear and tear or, obsolescence. In other words, it is the method of distributing the cost of tangible fixed assets over its estimated useful life.

To explain: whether the reported amount of equipment means that the replacement cost of the equipment is $44,500,000.

Explanation

No, the reported amount of equipment does not mean that the replacement cost of the equipment is $44,500,000. It is the original cost of the equipment. In other words, it is the price at which the equipment is purchased...

(b)

To determine

To explain: whether the reported amount of accumulated depreciation $29,800,000 means that it is set aside in a special fund for the replacement of the equipment.

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