Lebo purchased a machine on 1 January 2019 for R1 500 000. The company incurred installation costs of R30 000, testing costs of R15 000, and R10 000 of insurance for the first year of operation. The machine has an estimated useful life of five years and is expected to produce 10 000 000 units over its life span, with an estimated residual value of R125 000. 1.Calculate the initial value of the machine. 2.What is the book value of the machine after three years using the reducing balance method? Assuming the rate of depreciation is 40%.
Lebo purchased a machine on 1 January 2019 for R1 500 000. The company incurred installation costs of R30 000, testing costs of R15 000, and R10 000 of insurance for the first year of operation. The machine has an estimated useful life of five years and is expected to produce 10 000 000 units over its life span, with an estimated residual value of R125 000.
1.Calculate the initial value of the machine.
2.What is the book value of the machine after three years using the
Compare the impact of the straight-line method reducing balance and
(i) Trend on depreciation expense over the five-year life
(ii) Trend on net income over the five-year life
(iii) Cash flow from operations over the five-year life
(iv) Debt-to-equity ratio (v) PPE (fixed assets) turnover
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why is insurance not included in the initial value of the asset?
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