Essay on Depreciation Methods

Memorandum To From Subject Depreciation Value of your surplus Purpose Machine Date Congratulations on your purchase of this special purpose cable car. With every purchase of a new railway carry comes the depreciation appraise of the machine. In order to report the look on of this machine, we first must build out the total amount paid for your machine. It says here you purchased the machine for an explanation price of $1,200,000 and the freight follow was $6000 and the terms for install(a)ation was $64000.We would add all that up and bring in a total machine cost of $1,270,000. there are 3 types of depreciation methods we can use to formula out the annual depreciation jimmy of your machine Straight Line rule, Units of productions Method, and parallel Declining Method. The Straight Line Method is plain and simple. This will tell us what to report at the end of every socio-economic class for the depreciation honour of your machine. First we would discipline the cost of the machine negatively charged the salvage value divided by the reclaimable biography of the machine.I believe the salvage value would be the use of the machine in that year. For modelling the total cost of machine is 1270000-200000/5=214000 200000 would be the salvage life and 5 would be the useful life of the machine and 214000 would be our depreciation value for the year. So after the first year of use the book value of the machine would be 1270000-214000=1056000. Every year we would subtract 214000 from the previous book value. The Units of Productions Method is a little more complicated.This will tell us the pass judgment depreciation value of the machine. First we would take the cost of the machine minus estimated salvage value divided by the predicted units of production that your machine would modernize and we would get a cost per unit (depreciable). After we get the cost per unit (CPU), we would procreate it by the units stated in the period and we will get the d epreciation for the period, also in the last year of the useful life of the machinery we would depreciate to the estimated salvage value and never depreciate down the stairs the value.For vitrine the cost of the machine is 1270000 minus the salvage 200000 divided by the expect units that your machine would produce in its useful life which is 1000000. 1270000-200000/1000000 = $1. 07 per unit, this would be the cost per unit. Lets say your machine will produce 200000 in its first year, so we would take the depreciation per unit multiply the number of units produced in the period, 1. 07200000=214000. 214000 would be the depreciation expense for the first year and we would minus that from the spring book value of the machine.If the machine produced 250000 the next year, we would go thru the same process again but this time we would subtract the depreciation value from the previous year book value and not the beginning book value. The Double Declining Method is the last method we woul d use to figure of the depreciation value of the machine. First we need to figure the straight-line charge per unit and in order to do that we need the percent life of the machine and the useful life of the machine.We would divide each other and come up with the Straight-line rate. For example 100% divided by 5 years equals 20% that the machine would depreciate very year if we should the straight-line rate. Second step we would double that rate, 20% x 2 = 40%. 40% would be the double declining eternal sleep rate (ddb). The final exam step we take the double declining balance rate multiply by the beginning period book value. For example 40%x1270000=508000. 08000 would be the first year depreciation expense. The book value at the end of the first year would be 1270000-580000=762000. The next year we would take 40% of 762000 and come up with the depreciation expense for that year. In its final year of useful life the machine would never depreciate below the estimated salvage value an d we would just have to adjust our books. Mr. Abella, now you pick out how to depreciate the value of your machine. Once again I congratulate you on your purchase.