What should Delilah record as depreciation expense for 2015? Delilah Manufacturi

Question

What should Delilah record as depreciation expense for 2015?

Delilah Manufacturing Company, a calendar year reporting company, purchased a machine for $80,000 on January 1, 2013. At the date of purchase, Delilah incurred the following additional costs: Loss on sale of old machinery $1,500 Freight-in 800 Installation cost 2,300 Sales tax paid on new machine 500 Testing cost prior to regular operation 300 The estimated salvage value of the machine was $5,000, and Delilah estimated the machine would have a useful life of 15 years, with depreciation being computed using the straight-line method. In January 2015, accessories costing $5,200 were added to the machine in order to reduce operating costs and improve the machine's output. These accessories neither prolonged the machine's life nor provided any additional salvage value. What should Delilah record as depreciation expense for 2015?

Explanation / Answer

Depreciation under straightline method = Asset value-Salvage value

Asset useful life

Depreciation = $83900-$5000

15

Depreciation = $78900/15   

Depreciation = $5260 per year

Delilah record Depreciation should as depreciation expense for 2015 = $5260

Note:

1. Additional expenses incurred after purchase of machine and up to put to use should be capitalised and add to purchse cost of asset.

2. Accessories cost of $5200 shall not be capitalised because it shall not increase asset useful life.According to accounting standard if any accessories added to asset and increase life of asset by adding accessories it can be capitalised.

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