Question

The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $47,000. The machine would replace an old piece of equipment that costs $13,000 per year to operate. The new machine would cost $6,000 per year to operate. The old machine currently in use could be sold now for a salvage value of $22,000. The new machine would have a useful life of 10 years with no salvage value.

Required:

1. What is the annual depreciation expense associated with the new bottling machine?

Answer 1

The annual depreciation expense for the new bottling machine with a cost of $47,000 and a useful life of 10 years, with no salvage value, is $4,700 per year using straight-line depreciation.

Step-by-step explanation:

The annual depreciation expense for the new bottling machine can be calculated using straight-line depreciation, which is one of the most common methods of allocating the cost of an asset over its useful life.

To calculate the annual depreciation expense:

1. Determine the initial cost of the asset.
2. Subtract any salvage value the asset may have after its useful life.
3. Divide this amount by the number of years in the asset's useful life.

In this scenario, the cost of the new machine is $47,000, and it has no salvage value at the end of its useful life of 10 years.

Therefore, the annual depreciation expense would be:

Initial cost of the machine - Salvage value = Depreciable amount

$47,000 - $0 = $47,000 (Depreciable amount)

The annual depreciation expense is then:

Depreciable amount / Useful life = Annual depreciation expense

$47,000 / 10 = $4,700 per year.