Company Omega bought new petroleum refining equipment in the year 2000. The purc

Question

Company Omega bought new petroleum refining equipment in the year 2000. The purchase cost was 191726 dollars and in addition it had to spend 14558 dollars for installation. The refining equipment has been in use since February 1st, 2000. Omega forecasted that in 2030 the equipment would have a net salvage value of $10,000. Using the US Straight Line Depreciation Schedule, estimate the value of depreciation recorded in the accounting books in the year 2004 if the company decided to sell the equipment on August 5th (of 2004). (note: round your answer to the nearest cent and do not include spaces, currency signs, or commas)

Explanation / Answer

Answer=

Purchase cost = $191726

Installation cost = $14558

Total machine cost = $191726 + $14558 = $206284

assumption taken that equipment salvage value date is feb 2030 and total life is 30 years

Depreciate it using straight line method =

depreciation value every year = ( initial cost - salvage value )/ no of year = ($206284-$10000)/30 = 6542.8

if we divide it uniformally across the year 2004 then = (6542.8/365 )* ( day till august 5th in 2004 ) = (6542.8/365 )*216 = 3871.904

This is the depreciation amount Company will incur for the year 2004

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