Grouper Corporation bought a machine on June 1 2015 for 3503

Grouper Corporation bought a machine on June 1, 2015, for $35,030, f.o.b. the place of manufacture. Freight to the point where it was set up was $226, and $565 was expended to install it. The machine’s useful life was estimated at 10 years, with a salvage value of $2,825. On June 1, 2016, an essential part of the machine is replaced, at a cost of $2,237, with one designed to reduce the cost of operating the machine. The cost of the old part and related depreciation cannot be determined with any accuracy.

On June 1, 2019, the company buys a new machine of greater capacity for $39,550, delivered, trading in the old machine which has a fair value and trade-in allowance of $22,600. To prepare the old machine for removal from the plant cost $85, and expenditures to install the new one were $1,695. It is estimated that the new machine has a useful life of 10 years, with a salvage value of $4,520 at the end of that time. (The exchange has commercial substance.)

Assuming that depreciation is to be computed on the straight-line basis, compute the annual depreciation on the new equipment that should be provided for the fiscal year beginning June 1, 2019. (Round answer to 0 decimal places, e.g. 45,892.)

Solution

Cost of the old machine. =. $ 35,030
Add: freight. = $. 226
Add: installation cost = $. 565
Total cost of the machine = $ 35,821
Less: salvage value. = $ ( 2,825)
Net cost of the machine. = $ 32,996
Useful life of machine. = 10 years
Depreciation per year = $ 3,300
WDV value as on 1.06.2016 = $ 29,696
WDV value as on 1.06.2017 =. $ 26,396
WDV value as on 1.06.2018 = $ 23,096
WDV value as on 1.06.2019 = $ 19,796

Purchase value of the new machine = $ 39,550
Add: removal cost of old machine. = $ 85
Add: installation cost. = $ 1,695
Add: differential cost. = $ 2804
(22,600 - 19796)
Total cost of New machine. = $ 44,134
Less: salvage value. =($ 4,520)
Net value of cost of New machine. = $ 39,614
No. Of years of useful life. = 10 years
Depreciation per year of New machine= $ 3,961

Therefore, depreciation per year of New machine from the fiscal year 1.06.2019 is $ 3,961