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Hi ,

I have started my preparation for CMA-2015 Sep/Oct window !.

I have confusion  for the answer of below question  subject  to the Interest should be considered under total value of the asset -  if not  Why?.

On January 2, Rio Corp. bought machinery under a contract that required a down payment of $10,000, plus 24 monthly payments of $5,000 each, for total cash payments of $130,000. The cash equivalent price of the machinery is $110,000. The machinery has an estimated useful life of 10 years and an estimated salvage value of $5,000. Rio uses straight-line depreciation. In its income statement for the year ended December 31, what amount should Rio report as depreciation expense for this machinery?

As per my calculation the correct answer is 12,500 whereas  as the key says 10,500 . 

please elaborate ...., 


Akbar Syed

Hi ,

I have started my preparation for CMA-2015 Sep/Oct window !.

I have confusion  for the answer of below question  subject  to the Interest should be considered under total value of the asset -  if not  Why?.

On January 2, Rio Corp. bought machinery under a contract that required a down payment of $10,000, plus 24 monthly payments of $5,000 each, for total cash payments of $130,000. The cash equivalent price of the machinery is $110,000. The machinery has an estimated useful life of 10 years and an estimated salvage value of $5,000. Rio uses straight-line depreciation. In its income statement for the year ended December 31, what amount should Rio report as depreciation expense for this machinery?

As per my calculation the correct answer is 12,500 whereas  as the key says 10,500 . 

please elaborate ...., 


Akbar Syed

Hello

PPE(Property, Plant, Equipment) are initially measured with all costs necessarily incurred to bring the asset to the condition and location necessary to be used.

In the quoted question interest is to be  paid after the machine has been in a good condition for usage.

On the other hand interest attributable to the acquision, construction or production of PPE is included in its initial cost because the interest is paid before the machine become good condition for usage.

I hope the problem was resolved.

------------------------------
Michihiro Sakurai
Chief Executive Officer
Higashiosaka City Osaka Prefecture
Japan
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Original Message:
Sent: 05-13-2015 04:33 AM
From: Akbar Syed
Subject: Why Interest should not be added to total value of asset for calculating the Depreciation

Hi ,

I have started my preparation for CMA-2015 Sep/Oct window !.

I have confusion  for the answer of below question  subject  to the Interest should be considered under total value of the asset -  if not  Why?.

On January 2, Rio Corp. bought machinery under a contract that required a down payment of $10,000, plus 24 monthly payments of $5,000 each, for total cash payments of $130,000. The cash equivalent price of the machinery is $110,000. The machinery has an estimated useful life of 10 years and an estimated salvage value of $5,000. Rio uses straight-line depreciation. In its income statement for the year ended December 31, what amount should Rio report as depreciation expense for this machinery?

As per my calculation the correct answer is 12,500 whereas  as the key says 10,500 . 

please elaborate ...., 


Akbar Syed

Hi ,

I have started my preparation for CMA-2015 Sep/Oct window !.

I have confusion  for the answer of below question  subject  to the Interest should be considered under total value of the asset -  if not  Why?.

On January 2, Rio Corp. bought machinery under a contract that required a down payment of $10,000, plus 24 monthly payments of $5,000 each, for total cash payments of $130,000. The cash equivalent price of the machinery is $110,000. The machinery has an estimated useful life of 10 years and an estimated salvage value of $5,000. Rio uses straight-line depreciation. In its income statement for the year ended December 31, what amount should Rio report as depreciation expense for this machinery?

As per my calculation the correct answer is 12,500 whereas  as the key says 10,500 . 

please elaborate ...., 


Akbar Syed

Hi ,

I have started my preparation for CMA-2015 Sep/Oct window !.

I have confusion  for the answer of below question  subject  to the Interest should be considered under total value of the asset -  if not  Why?.

On January 2, Rio Corp. bought machinery under a contract that required a down payment of $10,000, plus 24 monthly payments of $5,000 each, for total cash payments of $130,000. The cash equivalent price of the machinery is $110,000. The machinery has an estimated useful life of 10 years and an estimated salvage value of $5,000. Rio uses straight-line depreciation. In its income statement for the year ended December 31, what amount should Rio report as depreciation expense for this machinery?

As per my calculation the correct answer is 12,500 whereas  as the key says 10,500 . 

please elaborate ...., 


Akbar Syed