18.4. Factors Affecting Depreciation

Try these first

1. 1.

   What factors do you consider when calculating the cost of an asset?

   Hint

   Think about all expenses incurred to make the asset operational.

2. 2.

   What does residual value mean?

   Hint

   Consider how much the asset might be sold for after use.

3. 3.

   What is included in the cost of an asset?

   • Only the purchase price
   • Purchase price plus installation and delivery
   • Only installation costs

   Hint

   Think about the entire investment made into the asset.

4. 4.

   True or False: Residual value is the estimated worth of an asset at the end of its useful life.

   • True
   • False

   Hint

   Consider what happens to assets after they've been utilized.

5. 5.

   A company purchases a machine for $50,000. It incurs an installation cost of$5,000 and a delivery fee of $2,000. The estimated residual value is$8,000 at the end of 10 years. Using the straight-line method, calculate the annual depreciation expense.

   Hint

   Remember to add all costs to find the total for depreciation.

6. 6.

   If a company re-evaluates its asset's useful life from 10 years to 5 years, but the cost and residual value remain the same, explain how this may impact their financial statements.

   Hint

   Think about how financial reporting might change with a shorter useful life.