Decision-Making for Asset Replacement
Added on 2021-04-21
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Running head: ASSET MANAGEMENT IN ENGINEERING ENVIRONMENTAsset Management in Engineering EnvironmentName of the Student:Name of the University:Author’s Note:
ASSET MANAGEMENT IN ENGINEERING ENVIRONMENT1Table of ContentsAnswer to Question 2......................................................................................................................2Part a............................................................................................................................................2Part b............................................................................................................................................3Question 3........................................................................................................................................8Part a............................................................................................................................................8Part b............................................................................................................................................9Reference.......................................................................................................................................15
ASSET MANAGEMENT IN ENGINEERING ENVIRONMENT2Answer to Question 2Part aDepreciation may be defined as the decrease in the value of the asset over time due tovarious factors which affect the life of the asset (Li and Hall 2016). The various methods whichare used in the process of computing depreciation are given below in details:1.Straight Line method: This is the most simple and easy method of computingdepreciation amount which is to be charged on the asset of the company. As per thismethod, the amount which is charged as depreciation remains the same every year overthe useful life of the assets (Ibarra 2013). This is a widely used method of computingdepreciation due to its simplicity in many companies.2.Diminishing Value Method: This is another most used method for computingdepreciation for the company. In this method a certain rate of depreciation is charged onthe value of the asset in order to compute the depreciation amount of the asset (Lawrenceand Okechukwu 2013). The amount of depreciation charged under this method changesevery year depending upon the written down value of the asset on which depreciation isto be charged.3.Unit of Production Method: As per this method, the amount of depreciation which ischarged on the value of the asset depends on the units produced or total number of hourswhich the machine has over the useful life of the asset.4.Sum of the Year’s Digit Method: In this method, the remaining useful of the asset isdivided by the sum of the years and then the figure is multiplied by the depreciation baseto determine the expenses relating to depreciation of an asset.
ASSET MANAGEMENT IN ENGINEERING ENVIRONMENT35.Double Declining Balance Method: In this method the expense relating to depreciation islarger in the initial years of the asset and becomes lower and lower in the later years ofthe useful life of the asset.Depreciation of an asset allows the valuation of the asset to done correctly. An asset which isused continuously will be having certain wear and tear which are expenses to the company eventhough they are not in cash (Liapis and Kantianis 2015). If such expenses are not recorded thenthe asset will be overvalued and this will be overstating the assets in the balance sheet which isdefinitely not the case.Part bRequirement (i)YearOpening BalanceResidual ValueRemaining Estimated LifeDepreciation p.a.Closing Book Value0$25,60,000$3,40,00012$0$25,60,0001$25,60,000$3,40,00011$1,85,000$23,75,0002$23,75,000$3,40,00010$1,85,000$21,90,0003$21,90,000$3,40,0009$1,85,000$20,05,0004$20,05,000$3,40,0008$1,85,000$18,20,0005$18,20,000$3,40,0007$1,85,000$16,35,0006$16,35,000$3,40,0006$1,85,000$14,50,0007$14,50,000$3,40,0005$1,85,000$12,65,0008$12,65,000$3,40,0004$1,85,000$10,80,0009$10,80,000$3,40,0003$1,85,000$8,95,00010$8,95,000$3,40,0002$1,85,000$7,10,00011$7,10,000$3,40,0001$1,85,000$5,25,00012$5,25,000$3,40,0000$1,85,000$3,40,000Depreciation Schedule under Straight Line Method:
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