It is requested: To calculate the book value with which the machine will appear in the Balance Sheet (Statement of Financial Position) on 31.12.2015 and 31.12.2016, after providing the relevant calculations and to enter the calendar entries concerning the fixed asset from the market until 31.12.2016.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
ITEM 1
Company "B" purchased in January 2015 a machine of purchase cost of 10.000.000 € by moving the current account. The useful life of the machine was estimated at 8 years and the residual value zero. The company follows the method of fixed depreciation for the calculation of depreciation of tangible assets. The management of the company estimated the
|
|
31.12.2015 |
31.12.2016 |
|
Net present value of expected cash flows |
7.600.000,00 |
6.600.000,00 |
|
Fair Value of the machine (less disposal costs) |
7.980.000,00 |
6.300.000,00€ |
The company has the purpose of holding the machine for the duration of its remaining useful life.
It is requested: To calculate the book value with which the machine will appear in the Balance Sheet (
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