Statistics Project Example

The base cost is inclusive of all cost that are associated with making the machine operational and they include purchase cost, set up cost, installation cost, tax, shipping and freight among others. The residual value is the value the firm expects to sell the asset after its useful life and is also referred to as scrap value. The estimated useful life is the period the asset is expected to be used by the firm (Kimmel and Jerry, 35). a) Assets tend to loss value faster in their first year of operation hence the net book value of the asset in the initial years may not be a true reflection of its market value.

If the asset is used as collateral for a loan, the bank may value it differently and hence there will be a variance in value assigned. Depreciation of the asset will be based on usage of the asset or the units being produced per period. Therefore, in the year where the asset will be used extensively, the depreciation allocation will be higher and will be low when production is low. The depreciated value is calculated based on the expected total amount of units it can produce in proportion to the cost basis less residual value.

No depreciation is charged the year, which the asset is not in use. This will provide the depreciation of the asset per unit produced. The expected units multiply this for each period to find the amount of depreciation to charge that year and less from the current net book value to find the end year book value of the asset (Kimmel and Jerry, 36). It is an accelerated depreciation method where the majority of the depreciation is allocated in the first years of the asset useful life. It is most appropriate for charging depreciation to asset that loss value fast during their first years and when the company want to shift profit recognition to the future.

The depreciation is calculated by multiplying the rate of straight-line depreciation by two and then this is multiplied by the net book value