Oman Flour mills purchased an equipment and it will be depreciated in such a way that the value of equipment at the end of any year is 90% of the value at the beginning of the year. The actual cost of the machine is OMR 20,000. a) What will be the scrap value of the equipment if the estimated useful life of the equipment is 6 years? b) After 6 years, the company got an offer to sell the scrap at a value of OMR 8,000. Shall company accept the offer? Discuss and give reasons to your answer.
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.
Q5: Oman Flour mills purchased an equipment and it will be
a) What will be the scrap value of the equipment if the estimated useful life of the equipment is 6 years?
b) After 6 years, the company got an offer to sell the scrap at a value of OMR 8,000. Shall company accept the offer? Discuss and give reasons to your answer.
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