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Hi Mike,
Is it possible to work out depreciation of both the heavy machinery & safety guard per separate? I did it like this initially, thinking that whether I did it per separate or together, it should lead me to the same result.. but seems like not…
Here’s my calculation.
Machinery yearly depreciation cost: 800K – 30K = 770K. Depreciation period 10 yrs straight line = 77K depreciated per accounting year
Safety guard 40K depreciated over 10 years, no residual charge = 4K depreciated per accounting year. It was acquired on 1 Sept 2012 and accounting year end is on 30 Nov 2012.
Answer = 77K + 4K * 3/12 = 78K total depreciation.
Where is the mistake? Your answer is 78.5K total depreciation.
Thanks for your work.
The key here is this sentence within the question:
“This cost $40,000, had an estimated useful life of 10 years and no residual value at the end of the machine’s useful life”
As at 1 September, 2012 the machine had been owned and depreciated for 40 months out of its estimated useful life of 120 months, so only 80 months of useful life remain at the time the safety guard is fitted
From 1 September, 2012 to 30 November, 2012 is 3 months so depreciation on the safely guard is 3/80 x $40,000 = $1,500
Add that to the $77,000 depreciation on the machine and there’s your $78,500
OK?
OK I understand now, the safety guard is useless without the machine, so if done separately I need to take into account the machine time span and not the safety guard’s. Thanks!
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