On January 1, Wilcox Company acquires, for cash, four machines that have the fol
ID: 2472506 • Letter: O
Question
On January 1, Wilcox Company acquires, for cash, four machines that have the following characteristics:
Estimated
Required:
Next Level What arguments may be used to support the composite depreciation method?
What arguments may be used to support the composite depreciation method?
The composite depreciation method depreciates assets only at the end of the asset’s life when all the assets in the group are disposed of.
The composite depreciation method is a more specific and accurate record of the cost of each asset in a group.
The composite depreciation method simplifies the record keeping when a large number of depreciable assets is acquired.
Machine CostEstimated
Residual Service Value Life A $26,000 $2,000 6 years B 19,000 1,000 9 years C 30,000 5,000 5 years D 28,000 — 7 yearsExplanation / Answer
Machine Cost Residual value Depriciable cost Service life Depriciation SLM A 26000 2000 24000 6 4000 B 19000 1000 18000 9 2000 C 30000 5000 25000 5 5000 D 28000 0 28000 7 4000 Total 103000 8000 95000 15000 Composite rate = total depriciation per year / total original cost =15000 / 103000 = 0.15 Composite life = Total depriciable cost / Total depriciation per year = 95000 / 15000 = 6.33 years Composite depriciation expense = 0.15 * 103000 = 15450 1) 1-Jan Machinery A/c Dr 103000 Cash Cr 103000 ( to record acquisition of machinery) 31-Dec Depriciation Dr 15450 Accumulated Depriciation Cr 15450 ( To record depriciation expense for the 1st year) 2) Cash 10000 Accumulated depriciation 9000 Machinery 19000 (To record sale of asset) 3) Benefits of composite method of depriciation 1) Each category has many assets . Calculating and recording depriciation for each asset becomes tedious and laborious. 2) This depriciation method for the whole category gives a result which is easily produced and understood