In 2016, Omar Co. purchased a machine for 480,000 SAR cash. The machine is expec

Question

In 2016, Omar Co. purchased a machine for 480,000 SAR cash. The machine is expected to produce 2,500,000 units during its useful life and has an estimated salvage value of 80,000 SAR. (3 Marks)

Assume that:

In 2016, Omar Co. produced 600,000 units

In 2017, 700,000 units were produced.

In 2018, 500,000 units were produced.

In 2019, 300,000 units were produced.

In 2020, the factory was closed for maintenance reasons.

In 2021, 400,000 units were produced.

Calculate the following: (4 Marks) (draw a table)

The amount of depreciation expense in those years?

The amount of accumulated depreciation?

The amount of book value in these years?

Answer:

Explanation / Answer

First of all, we need to calculate depreciation expense per unit which is calculated as follows:-

Depreciation per unit = (Cost - Salvage Value)/Useful Life in units

= (480,000 SAR - 80,000 SAR)/2,500,000 units = 0.16 SAR per unit

  Table showing Dep. , Accumulated Dep. and Book Value (Amts in SAR)

Year Units Produced (A) Depreciation Exp. (B = A*0.16 per unit) Accumulated Depreciation (C) Book Value (480,000 - C) 2016 600,000 96,000 96,000 384,000 2017 700,000 112,000 208,000 272,000 2018 500,000 80,000 288,000 192,000 2019 300,000 48,000 336,000 144,000 2020 0 0 336,000 144,000 2021 400,000 64,000 400,000 80,000

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