You purchased a new molding machine for $155,000 by trading in a similarmachine that had a book value of$18,000.Assuming that the trade-in allowance was $20,000 and that $85,000 cash was paid for the new asset, what is the cost basis of the new molding machine for depreciation purposes?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
You purchased a new molding machine for $155,000 by trading in a similar
machine that had a book value of$18,000.Assuming that the trade-in allowance was $20,000 and that $85,000 cash was paid for the new asset, what is the cost basis of the new molding machine for
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