On January 1 2017 Evers Company purchased the following two

On January 1, 2017, Evers Company purchased the following two machines for use in its production process. Machine A: The cash price of this machine was $52,000. Related expenditures included: sales tax $3,100, shipping costs $200, insurance during shipping $120, installation and testing costs $50, and $150 of oil and lubricants to be used with the machinery during its first year of operations. Evers estimates that the useful life of the machine is 5 years with a $5,500 salvage value remaining at the end of that time period. Assume that the straight-line method of depreciation is used. Machine B: The recorded cost of this machine was $180,000. Evers estimates that the useful life of the machine is 4 years with a $10,200 salvage value remaining at the end of that time period.

Solution

Answer

[ Cost of Asset capitalised (less) Salvage Value ] / Useful life in years

All costs till installation of assets are capitalised unless they are refundable.

Cash Price

52000

capitalized

Sales Tax

3100

capitalized

Shipping cost

200

capitalized

Insurance

120

capitalized

Installation cost

50

capitalized

Oil

150

Not capitalized

Total Cost of Asset capitalized

55470

Salvage Value

5500

Useful Life

5

Annual SLM depreciation

9994

[55470-5500]/5

Total Cost of Asset capitalized

180000

Salvage Value

10200

Useful Life

4

Annual SLM depreciation [180000-10200]/4

42450