Compare Net Fixed Asset Values: Machine A vs. Machine B in Year 1

Question:

Machine A costs $5,000 and depreciates on a 4-year schedule. Machine B costs $4,000 and depreciates on a 5-year schedule.

Which machine has a higher Net Fixed Asset value on the Balance Sheet in year 1?

To determine which machine has a higher Net Fixed Asset value on the Balance Sheet in year 1, follow these steps:

1. Calculate the Annual Depreciation Expense:

Machine A: Cost: $5,000

Depreciation Schedule: 4 years

The annual depreciation expense for Machine A is calculated as:

Annual Depreciation (A) = Cost/Depreciation Period

Annual Depreciation (A) = 5000/4 = 1250 per year

Machine B: Cost: $4,000

Depreciation Schedule: 5 years

The annual depreciation expense for Machine B is calculated as:

Annual Depreciation (B) = Cost/Depreciation Period

Annual Depreciation (B) = 4000/5 = 800 per year

2. Calculate the Net Fixed Asset Value at the End of Year 1:

Machine A:

Cost: $5,000

Accumulated Depreciation (End of Year 1): $1,250

Net Fixed Asset Value = Cost – Accumulated Depreciation

Net Fixed Asset Value (A)= 5000 – 1250 = 3750

Machine B:

Cost: $4,000

Accumulated Depreciation (End of Year 1): $800

Net Fixed Asset Value = Cost – Accumulated Depreciation

Net Fixed Asset Value (B)= 4000 – 800 = 3200

3. Compare the Net Fixed Asset Values:

Machine A: $3,750

Machine B: $3,200

Final Thoughts:

Machine A has a higher Net Fixed Asset value on the Balance Sheet in year 1 compared to Machine B.