Question
ABC (ltd) has purchased an equipment costing OMR 1st January 2015 for OMR 150,000. The company estimates the equipment will have a salvage value of
ABC (ltd) has purchased an equipment costing OMR 1st January 2015 for OMR 150,000. The company estimates the equipment will have a salvage value of OMR 30,000. The company is considering on the depreciation method. The following are the details available. The useful life of the equipment will be 6 years. The maximum number of hours the machine can be operated throughout its useful life is 250,000 hours. The machine were operated for; 2015 35,000 hours 2016 33,000 hours 2017 30,000 hours 2018 32,000 hours 2019 28,000 hour The cash revenues earned by the company during the five years are as follows; 2015 OMR 29,000 2016 OMR 32,000 2017 OMR 37,500 2018 OMR 42,000 2019 0MR 45,000 The three approaches of depreciation that is available for the company to adopt are straight line method, written down value (Reducing Balance Method), Activity based Method) Requirement, The financial accountant is evaluating the depreciation approaches to select the most suitable depreciation approach that will increase the organizations future profitability. You are required to use all 3 depreciation methods mentioned above and compute the following. a. Which company will report the highest amount of net income for 2016 based on all 3 depreciation approaches? (6 marks) b. Which company will report the lowest amount of net income for 2018 based on all 3 depreciation approaches? (8 marks) c. Which company will report the highest book value on the December 31, 2019, balance sheet based on all 3 depreciation approaches? (8 Marks) d. Which company will report the highest amount of retained earnings on the December 31, 2019, balance sheet based on all 3 depreciation approaches? (8 marks) (Total 30 Marks)
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