At the beginning of the year, Grillo Industries bought three used machines from

Question

At the beginning of the year, Grillo Industries bought three used machines from Freeman Incorporated. The machines immediately were overhauled, were installed, and started operating. Because the machines were different, each was recorded separately in the accounts Machine A Machine B $10,800 $40,000 $23,800 Machine C Cost of the asset Installation costs Renovation costs prior to use Repairs after production began 950 750 700 3,900 3,500 900 3,000 4,000 2,500 By the end of the first year, each machine had been operating 8,000 hours Required 1. Compute the cost of each machine ost o Machine

Explanation / Answer

Solution 1:

Solution 2:

Depreciaton for first year:

Machine A (SLM) = ($12,500 - $2,800) /5 = $1,940

Machine B (Units of Production) = ($47,400 - $2,400) * 8000 / 20000 = $18,000

Machine C (Double declining balance method):

Depreciation rate (SLM) = 1/10 = 10%

Depreciation rate (double declining) = 10%*2 = 20%

Depreciation for first year on Machine C = $30,800 *20% = $6,160

Computation of Cost of Each machine Particulars Machine A Machine B Machine C Cost of asset $10,800.00 $40,000.00 $23,800.00 Installation cost $950.00 $3,900.00 $3,000.00 Renovation cost prior to use $750.00 $3,500.00 $4,000.00 Total cost to be capitalized $12,500.00 $47,400.00 $30,800.00

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