Purchase Price of Machine= $ 800,000

Registration charges = $ 50,000

Commission paid on purchase = $10,000

Insurance Charges = $20,000

Life of Asset = 10 years

Required:

a) Calculate Depreciation per year

b)On 1st April 2016, X Ltd purchased machine costing $ 500,000. He paid $40,000 as commission on purchase. On 1st July 2017 machine was installed and paid Rs 100,000 as installation charges. Calculate depreciation for the year ended on 31st December 2016 and 2017. If rate of depreciation is 10% by WDV method.

c)JK Co. bought a heavy duty machinery for its production process on July 1, 2008 at a price of $ 200,000 with credit terms of 2/10, n/30 and paid the amount due on 9th July 2008. In order to purchase this machinery, JK has to incur the following additional expenses on1st July 2008.

Sales tax 15 %

Freight charges 25,000

Transportation from railway to the JK Factory 3,000

Installation charges 8,000

It is the company policy to depreciate the machinery over the 10 years. This machine has a scrape value of $ 10,000. Straight line method of depreciation is to be used for charging the depreciation. JK closes its accounting year on December 31 each year.

Required

a) Calculate the cost of the machine.

b) Calculate the annual depreciation expenses for December 31, 2008, 2009 & 2010.

A. Depreciation Expense: 86990, Depreciation on 31st December 2016: 0, Depreciation on 31st December 2017: 32000, Cost of Machine: 267800, Depreciation for 2008: 175070, Depreciation for 2009: 25140, Depreciation for 2010: 25140
B. Depreciation Expense: 86666, Depreciation on 31st December 2016: 1, Depreciation on 31st December 2017: 32000, Cost of Machine: 261800, Depreciation for 2008: 124570, Depreciation for 2009: 25140, Depreciation for 2010: 25140
C. Depreciation Expense: 86000, Depreciation on 31st December 2016: 0, Depreciation on 31st December 2017: 32000, Cost of Machine: 261400, Depreciation for 2008: 12570, Depreciation for 2009: 25140, Depreciation for 2010: 25140