Essay on Depreciation Methods

Topics: Depreciation, Book value, Generally Accepted Accounting Principles Pages: 2 (724 words) Published: November 21, 2012
Subject: Depreciation Value of your Special Purpose Machine

Congratulations on your purchase of this special purpose machine. With every purchase of a new machinery comes the depreciation value of the machine. In order to report the value of this machine, we first must figure out the total amount paid for your machine. It says here you purchased the machine for an invoice price of $1,200,000 and the freight cost was $6000 and the cost for installation was $64000. We would add all that up and get a total machine cost of $1,270,000. There are 3 types of depreciation methods we can use to figure out the annual depreciation value of your machine: Straight Line Method, Units of productions Method, and Double Declining Method. The Straight Line Method is plain and simple. This will tell us what to report at the end of every year for the depreciation value of your machine. First we would take the cost of the machine minus the salvage value divided by the useful life of the machine. I believe the salvage value would be the use of the machine in that year. For example: the total cost of machine is 1270000-200000/5=214000: 200000 would be the salvage life and 5 would be the useful life of the machine and 214000 would be our depreciation value for the year. So after the first year of use the book value of the machine would be 1270000-214000=1056000. Every year we would subtract 214000 from the previous book value. The Units of Productions Method is a little more complicated. This will tell us the estimate depreciation value of the machine. First we would take the cost of the machine minus estimated salvage value divided by the predicted units of production that your machine would produce and we would get a cost per unit (depreciable). After we get the cost per unit (CPU), we would multiply it by the units produced in the period and we will get the depreciation for the period, also in the last year of the useful life of the machinery...
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