Question
Alex Fine Foods purchased a machine on 1 July 2016 for a total cost of $20,000. The owner is trying to decide which depreciation method
Alex Fine Foods purchased a machine on 1 July 2016 for a total cost of $20,000. The owner is trying to decide which depreciation method to use for this machine. The machine is expected to last for 4 years and have a residual value of $2,000 at the end of its useful life. Estimated total production is 75,000 units: year 1 is 25,000 units, year 2 is 15,000 units, year 3 is 25,000 units and year 4 is 10,000 units.
For the Reducing Balance method use 44% as the rate.
(a) What would be the written down value of the machine at 30th June 2018 for each depreciation method?
(b) Which depreciation method would give the lowest profit in the first year of the machines use? Explain your answer.
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