Question - Equipment was acquired on 1 July 2010 for $50,000 by HiLite Ltd. Its life was determined as being:
Useful = 5yre
Economic = 8yre
Physical = 10yre
The estimated residual values at the end of these respective periods are:
After yrs = $20,000
After 8yre = $4,000
After10yre = NIL
(a) Over what period should HiLite depreciate the equipment?
(b) Would the depreciation expense for the year 2012 be greater if HiLIte uses the straight-line method or the reducing-balance method?
(c) On what basis should management select a depreciation method for equipment?
(d) "Costs are always expenses" Do you agree?