In its first year of business, Digmore Corporation’s balance sheet shows gross fixed assets at $90 million and accumulated depreciation of $10 million. If the estimated salvage value of these assets is $10 million, and the original estimated useful life is 8 years, what method of depreciation did Digmore most likely use? A) Sum-of-years digits. B) Double-declining balance. C) Units of production. D) Straight Line. Here is my calculation: Company is in first year of business and year end balance sheet reports assets=$90MM and depreciation=$10MM ====> Starting value of the asset = 90+10=$100MM If we use SL method, depreciation for each of the given 8 years is 100-salvage/8 = $11.25MM (not eq $10MM accumulated depr) I checked options too and by elimination C will be my ans Schweser says: D ??
The answer seems to make sense if you take gross fixed assets as total assets (ie before depreciation). Given straight line depreciation: Gross Assets : USD 90 m Salvage VAlue: USD 10 m Amount to be be depreciated: USD 80 m Estimated Useful Life: 8 yrs Depreciation per year: USD 80m / 8 = USD 10 m which is the charge in the first year
i thought gross asset was $90MM+$10MM = $100MM I might sound stupid but I am gonna still ask this question… Is gross asset = historical cost of the assets (exclusive of depreciations, write-downs etc.) ?
re what “gross assets” means, I am not sure. What i figured on was “accumulated depreciation”. If the balance sheet shows an accumulated depreciation figure it must also show the original value from which the accumulated depreciation is removed to arrive at the net assets (non current). In this case: Net Assets = Gross Assets - Accumulated Depreciation where gross assets represents the original cost or value of the assets
Gross is definitely the historical cost of the asset. CP
Thanks !! 
Depreciation is contra account of gross assets (it offsets assets).