Question
i. What factors determine the amount of depreciation
to be charged on an acquired asset?
ii.
Kris bought an asset for $3,000,000 whose residual
value is estimated to be $208,589. If the asset is expected to last for seven
years, determine the annual depreciation chargeable against the asset.
Solution
i. Factors that determine the amount pf depreciation to be charged on an asset include:
1. The asset is not purchased (acquired) with the prime intention of resale
2. The economic useful life of the asset must cut across over one-year period
3. The asset is purchased (acquired) for the production of goods or rendering of services
4. The economic useful life of the asset is limited ie it has a life span
ii. Kris
Computation of Annual Depreciation
To compute the annual depreciation, we use the
following mathematical formula
D = (c – s)
n
From the above formula,
D represents the annual depreciation to be computed
c represents the (purchased) cost of the asset
s represents the estimated residual value, and
n represents the number of useful life (in years) of
the assets.
Thus, from the above, we deduce that:
c = $3,000,000
s = $208,589
n = seven (7)
Hence,
D = (c – s)
n
Becomes
D = ($3,000,000 –$208,589)
7
D = $2,791,411
7
D = $398,773
Annual depreciation is $398,773
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