MEMO TO BRIAN CFO

MEMO
TO BRIAN
CFO , DDM CORP.
Subject: depreciation report for the xy2 crusher
Report:
Depreciation of the crusher is calculated in the same way as it is calculated for the other equipment that is bought for the business purposes. There are following methods that are used in calculating depreciation for the crusher.
Requirement1
• Depreciation methods

1. Straight-line = (cost – residual value) / useful life (in years)

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ADVANTAGES
• Easy to use, and pretty straight forward
• Straight method that uses uniform depreciation over the term of life of equipment.
DISADVANTAGES
• This method does not really account for the maintenance and cost of repairs that differs over the term of life each year.
• does not work when estimated life of the product is not known.

2. Units of production
ADVANTAGES
• provides more accurate estimate over each item produced
• fairly used method for manufacturing plants for equipment.
DISADVANTAGES
• this method is challenging to apply in daily life situation.

3.declining balance method

ADVANTAGES
• its great method used for calculating depreciation for the assets that declines their value quickly
• fairly beneficial over other methods for calculating accurate depreciation for short term equipment for the companies.
DISADVANTAGES
• this method is challenging to apply in daily life situations.
• Requirement 2
– out of the 3 depreciating methods, unit production method is recommended for the crusher as the equipment is mainly based on the ore production tonnage and easy to calculate depreciation as per production units.

• Requirement 3
Depreciation expense

Cost of equipment /life of equipment
= 10.5 million/15
= .06667 million per year

• Requirement 4

Residue value= (cost-units of production*expected units)/ units used
= R= (10.5 million-1million tonnes*1.4 million tonnes)/1.6 million tonnes
= 8.26 million for first year

• Requirement 5

Declining method

Cost*(1-d)n
= 10.5 million(1-d)15