Question

Fixed Asset Discussion:

1. Identify a type of company in your pathway that might purchase fixed assets (see suggestions below).
2. List 5 fixed assets that they might purchase to run their business.
3. Select one depreciable fixed asset. Based on research suggest what the cost, residual value and estimated life might be for that fixed asset.
4. Using your assumptions above, calculate:
   1. Straight-line depreciation per year.
   2. Declining Balance depreciation for each of the first two years
   3. Units of Production depreciation (make assumptions about the total expected use and the first two year’s use), for each of the first two years.
5. Suggest which depreciation method might be more appropriate and why.

Examples of sectors/industries in pathways could be:

• AHCD: Media, Dance, Theater, Film production, Graphics design or Architecture
• Business: Tourism/Leisure, Telecommunications, Retailers, Computers, Equipment, Food and Beverage Products, Real Estate, Technology Hardware, Toys, Commercial Services, Financial Services, any business is acceptable
• Education: Non-Profit Services, Public Agency, Child care, Charter schools, Universities
• Health Sciences: Health Care Services, Healthcare Products, Hospital, Household Products, Chemicals
• IMCT: Aviation, Construction, Construction Materials, Logistics, Automotive, Mining
• Public Safety:   Equipment providers for the industry, Public Agency, Non-Profit Services
• STEM: Engineering, Computers. Chemicals, Energy, Energy Utilities, Technology Hardware
• SGSHS: Healthcare Services, Non-Profit Services, Media, Public Agency

Answer 1

Type of company: Professional services, CA and Consultancy, Audit services based company
Fixed assets: Land (for office space and parking), Computers (for administrative work), Furniture (for the office area), Equipment (tools for maintenance)
Depreciable fixed asset: Computer. The average price of a new computer is 15000. The estimated life of a car is 4years. The depreciating rate is about 20% and the residual value becomes 1000.
For simplicity let’s consider the cost of a computer to be 20000.

Straight-line depreciation:
Depreciation expense = (cost – residual value)/period = (20000-1000)/4 = 4750

Year	Opening Value	Depreciation	Closing Value
1	20,000	4,750	15,250
2	15,250	4,750	10,500
3	10,500	4,750	5,750
4	5,750	4,750	1,000

Written Down Value Method:

Year	Opening Value	Depreciation	Closing Value
1	20,000	4,000	16,000
2	16,000	3,200	12,800
3	12,800	2,560	10,240
4	10,240	2,048	8,192

I think we will not apply the units of production method for computer

Among the other methods , if feel Straight Line method is the best method for computers