On January 1, year 1, the first day of business, Kate Company spent $115,000 on a machine. The machine's price at the end of the year was $125,000. The machine depreciates using the straight-line method, has a five-year life, and no salvage value.

What is the amount of the current cost depreciation expenditure that would appear in supplemental current cost financial statements for the year ended December 31, year 1?

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TheoryPractice · Accepted Answer

$24,000. The average current cost of the asset during the term of usage should be used to calculate depreciation. This machine will typically cost $120,000 [($115,000 + $125,000) ÷ 2] at year one's current prices. Therefore, year 1 depreciation expense is $24,000 ($120,000 ÷ 5-year useful life).

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