Calculate the inventory depreciation expense for August using a 25% depreciation rate.
| (in $000) | Begin Inv. | Purchases | COGS |
|---|---|---|---|
| June | 70 | 30 | 40 |
| July | 60 | 10 | 50 |
| August | 20 | 50 | 30 |
Answer (2)
Calculate the ending inventory: Ending Inventory = Beginning Inventory + Purchases − COGS = 20 , 000 + 50 , 000 − 30 , 000 = 40 , 000 .
Calculate the depreciation expense: Depreciation Expense = Ending Inventory × Depreciation Rate = 40 , 000 × 0.25 = 10 , 000 .
The inventory depreciation expense for August is $10,000.
The final answer is 10 .
Explanation
Understanding the Problem We are given the beginning inventory, purchases, and cost of goods sold (COGS) for August. We need to calculate the inventory depreciation expense for August using a 25% depreciation rate.
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 From the table, we have: Beginning Inventory = $20,000 Purchases = $50,000 COGS = $30,000 Plugging these values into the formula, we get: Ending Inventory = 20 , 000 + 50 , 000 − 30 , 000 = 40 , 000
Calculating Depreciation Expense Next, we need to calculate the depreciation expense for August. The depreciation rate is 25%, so we multiply the ending inventory by 0.25: Depreciation Expense = Ending Inventory × Depreciation Rate Depreciation Expense = 40 , 000 × 0.25 = 10 , 000
Final Answer Therefore, the inventory depreciation expense for August is $10,000. Since the table is in thousands of dollars, the answer is $10 (in $000).
Examples
Inventory depreciation is a common accounting practice. For example, a clothing store might depreciate its inventory at the end of each season to account for changes in fashion and demand. Calculating depreciation helps businesses accurately reflect the value of their assets and manage their finances effectively. This ensures that financial statements provide a true and fair view of the company's financial position.
The ending inventory for August is calculated as $40,000. Using a 25% depreciation rate, the inventory depreciation expense for August is $10,000. Therefore, the answer is $10 (in $000).
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