Nelson Company purchased equipment and incurred the following costs:1 Cash price = $55,0002 Sales taxes = $4,4003 Insurance during transit = $4004 Site preparation, installation, and testing= $2,300What amount should be used as the cost basis of the equipment?
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.
Nelson Company purchased equipment and incurred the following costs:
1 Cash price = $55,000
2 Sales taxes = $4,400
3 Insurance during transit = $400
4 Site preparation, installation, and testing= $2,300
What amount should be used as the cost basis of the equipment?
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