Question

Power to a remote transmitting station is provided by a diesel generator unit. the original cost of the unit is 55 000 pesos. its costs 2 000 pesos to ship the unit to the job site. an additional cost of 3 000 pesos was incurred for installation.

a.) determine the annual depreciation cost by the sinking fund method if the unit has an expected life of 10 years. the salvage value of the unit at the end of it's life estimated at 5000 pesos.

Answer 1

To calculate the annual depreciation cost for the diesel generator unit using the sinking fund method, subtract the estimated salvage value from the total initial cost, and then divide by the expected life of 10 years. The result is a yearly depreciation cost of 5,500 pesos.

Step-by-step explanation:

The original cost of a diesel generator unit is 55,000 pesos, with an additional 2,000 pesos for shipping and 3,000 pesos for installation, summing up to a total initial cost of 60,000 pesos. To determine the annual depreciation cost using the sinking fund method, we first need to calculate the total depreciation by subtracting the salvage value from the total initial cost.

In this case, the total depreciation over the expected life of 10 years would be 60,000 pesos - 5,000 pesos (salvage value) = 55,000 pesos. The annual depreciation cost would therefore be the total depreciation divided by the number of years, resulting in 55,000 pesos / 10 years = 5,500 pesos per year.