Question

EPT PRACTICE FOR LEARNING OBJECTIVE 3 CONCEPT PA Malley and Richie purchased a computerea an u an 1 It was estima seful life of four years and it was depreciated evenly over that time per wars it was serviced at a cost of $300. At the beg lepreciated evenly over that time period. Each of the four 0. At the beginning of Year 2 due to a power surge the hard had to be reimaged and the software had to be reinstalled at a cost of Year 2 the computer was upgraded with additional memory at a cost of $1,000 e retired at the end of the fourth year. Compute the expenses (depe u with additional memory at a cost of $1,000. The computer nance) recognized by O'Malley and Richie over the four-year period. year. Compute the expenses (depreciation and mainte-

Answer 1

Calculation Of Depreciation on Computer -

Depreciation is charge on SLM Basis hence is Divided Equally in 4 years but in the end of 2nd Year $1000/- spend due to this expenses computer are upgraded hence this $1000/- is Capitalized and Depreciation charged on this expenses in the balance of 2 years.

Depreciation 1st Year- $8000/4=$2000

Depreciation 2nd Year- $6000/3= $2000

In end of 2nd year balance Value of assets = $8000-$4000=$4000

and expenses made to upgrade computer $1000, so this Amount include in Balance value of Computer.

Now, Closing Value of Computer in the end of 2nd Year= $$4000+1000=$5000

Depreciation 3rd Year- $5000/2= $2500

Depreciation 4th Year- $2500/1 = $2500

Maintenance Expense- $300 every year till 4 year of life of Computer

$500 expenses on hard Drive are also maintenance exp. of 2nd Year, Because of this Expenses productivity of computer not increase hence it is not capitalized.