ECONOMICS

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COST ACCOUNTING

CAPITAL BUDGETING

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
PT. Maju Laras bought a machine 6 years ago for Rp 120 million. The estimated economic life of the machine is 10 years. Depreciation using the straight-line method, the residual value in the 10th year is IDR 20 million. PT. Maju Laras wants to replace the machine with a new machine worth IDR 180 million. If the old machine is sold, it is estimated that it will sell for Rp. 40 million. Sales tax 30%. If the cost of installing a new machine is IDR 20 million, how much is the net investment for the machine project?
A
IDR 200 million
B
IDR 172 million
C
IDR 60 million
D
IDR 148 million
Explanation: 

Detailed explanation-1: -The calculation of the depreciation rate of machinery and equipment has the following formula: Annual depreciation = (acquisition cost – residual value) / years of useful life.

Detailed explanation-2: -Depreciation expense for a given year is calculated by dividing the original cost of the equipment less its salvage value, by the expected number of units the asset should produce given its useful life. Then, multiply that quotient by the number of units (U) used during the current year.

Detailed explanation-3: -To calculate using this method: Subtract the salvage value from the asset cost. Divide that number by the estimated number of hours in the asset’s useful life to get the cost per hour. Multiply the number of hours (or units of production) in the asset’s useful life by the cost per hour for total depreciation.

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