Question

a company using straight line depreciation has an ending gross investment in fixed assets of $750, an accumluted depreciation of $300 and an annual depreciation expense of $150. the total depreciable life of the fixed assets and the age if the plant and equipment are respectively

5 years and 2 years

8 years and 2 years

7 years and 5 years

2 years and 5 years

Answer 1

Ans : Total depreciable life of the fixed assets 5 years & age of the plant and equipment = 2 years

Given:

Gross investment in fixed assets = $750
Accumulated depreciation = $300
Annual depreciation expense = $150

(i) Total depreciable life of the fixed assets
= (Gross investment in fixed assets - Salvage Value) / Annual depreciation expense
= ($750 - 0) / $150
= 5 years

Note: Since the company uses SLM method for charging depreciation, the depreciation expenses remains the same every year. Also, there is no salvage value mentioned for the given fixed assets, so the value of the fixed assets will be depreciated to zero till the end of their life. Therefore, total depreciable life can be calculated by dividing gross investment by annual depreciation expense.

(ii) Age if the plant and equipment
= Accumulated depreciation / Annual depreciation expense
= $300 / $150
= 2 years

Note: The accumulated depreciation represents the total depreciation charged on the assets in previous years. Therefore, age of the assets can be calculated by dividing the accumulated depreciation by annual depreciation expense.