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 113616 dollars and in addition it had to spend 15248 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).

Explanation / Answer

Ans:- Total fixed cost of equipment = Purchase cost + Installation cost = $113616+ $15248 = $128864

Depriciable asset cost = Total fixed cost - Salvage value = $128864 - $10000 = $118864

Useful life = 30 years

So, Depreciation per year = $118864/30 = $3962.13

So, Value of depreciation recored in 2004 (After 4 years) = 4* 3962.13 = $15848.53

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