Calculate the inventory depreciation expense for August using a 15% depreciation rate.
| (in $000) | Begin Inv. | Purchases | COGS |
|---|---|---|---|
| June | 40 | 60 | 80 |
| July | 20 | 100 | 30 |
| August | 90 | 20 | 50 |
$[?]
Answer (2)
Calculate the ending inventory: Ending Inventory = Beginning Inventory + Purchases - COGS = $90,000 + $20,000 - $50,000 = $60,000.
Calculate the depreciation expense: Depreciation Expense = Ending Inventory × Depreciation Rate = 60 , 000 \times$ 0.15 = $9,000.
The inventory depreciation expense for August is $\boxed{ 9,000} .
Explanation
Understanding the Problem We are given the beginning inventory, purchases, and cost of goods sold (COGS) for August. We are also given a depreciation rate of 15%. Our goal is to calculate the inventory depreciation expense for August.
Calculating Ending Inventory First, we need to calculate the ending inventory for August. The formula for ending inventory is:
Ending Inventory = Beginning Inventory + Purchases - COGS
Using the values provided in the table for August (in thousands of dollars):
Beginning Inventory = $90,000 Purchases = $20,000 COGS = $50,000
Plugging these values into the formula:
Ending Inventory = $90,000 + $20,000 - $50,000 = $60,000
Calculating Depreciation Expense Next, we need to calculate the depreciation expense for August. The depreciation expense is calculated by multiplying the ending inventory by the depreciation rate.
Depreciation Expense = Ending Inventory × Depreciation Rate
We are given a depreciation rate of 15%, which can be written as 0.15. Therefore,
Depreciation Expense = 60 , 000 \times$ 0.15 = $9,000
Final Answer Therefore, the inventory depreciation expense for August is $9,000.
Examples
Inventory depreciation is a common concept in accounting. For example, a company might use this calculation to determine how much value their inventory loses over time due to obsolescence, damage, or other factors. This helps them accurately report their financial performance and make informed decisions about inventory management, pricing, and purchasing.
The inventory depreciation expense for August is calculated by first finding the ending inventory, which amounts to $60,000. Then, multiplying this by a depreciation rate of 15% gives a depreciation expense of $9,000. Thus, the final depreciation expense for August is $9,000.
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