# 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.

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

#### Solutions

Chapter
Section
Chapter 10, Problem 10.4EX
Textbook Problem

## Nature of depreciationTri-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.

Expert Solution

(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 of Solution

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...

Expert Solution

(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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