On 1 january 2014 special ltd acquired a wood lathe for 31, Ask an Expert

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On 1 January 2014, Special Ltd acquired a wood lathe for $31 500, which included shipping charges of $500. The lathe has an estimated useful life of 5 years (or 30 000 machine hours of operation) and a residual value of $3000. Insurance on the lathe while in transit was $150; insurance against damage for 1 year amounted to $250. Finally, installation costs were $1000 and test runs before commissioning totaled $350.

During the first year of operation the machine was operated for 6200 hours.

Required

Calculate the cost of the lathe.
Calculate the depreciation for the year ending 31 December 2014 using each of the following methods:

straight-line
unit-of-production
diminishing-balance (use rate of 38%)
sum-of-years-digits.

The nature of depreciation is discussed in IAS 16/AASB 116. Outline alternative views considered for the accounting treatment of deprecation and discuss the rationale for the treatment adopted in the standard.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9963387

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