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If a new machine is bought for special order for 20,000 usd, and its depericiated over 10 years for amt. of 2000 usd. Will we include total cost for purchase of machine or Just depereciated amount ?
you know its just one off contract and we don’t know if the machine will be of any use after this contract. so, Its alittle weird question. as we will spend 20,000 usd for a special order but we only depereciate 2000.
The depreciation itself is irrelevant because it is not cash.
The amount to be included will be the cost of $20,000 less any expected sale proceeds at the end of the special order. Depending on how long the special order is likely to take, the expected sale proceeds will be 20,000 less the depreciation at 2,000 a year for the number of years.
However it does seem a rather strangely worded question. If it is a past exam question that you are referring to (or a question in your BPP Revision Kit) then tell me which one and then I can explain more.
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