Calculate the inventory depreciation expense for June using a 25% depreciation rate.
| (in $000) | Begin Inv. | Purchases | COGS |
|---|---|---|---|
| June | 60 | 50 | 40 |
| July | 70 | 30 | 80 |
| August | 20 | 60 | 70 |
Answer (2)
Calculate the ending inventory for June: Ending Inventory = Beginning Inventory + Purchases - COGS = $60 + $50 - $40 = $70 (in $000).
Calculate the depreciation expense for June: Depreciation Expense = Depreciation Rate × Ending Inventory = 0.25 × $70 = $17.5 (in $000).
The inventory depreciation expense for June is $17.5 (in $000).
The final answer is 17.5
Explanation
Understanding the Problem We are given the beginning inventory, purchases, and cost of goods sold (COGS) for June. We are also given a depreciation rate of 25%. Our goal is to calculate the inventory depreciation expense for June.
Calculating Ending Inventory First, we need to calculate the ending inventory for June. The formula for ending inventory is:
Ending Inventory = Beginning Inventory + Purchases - COGS
Using the values provided in the table for June, we have:
Ending Inventory = $60 + $50 - $40 = $70 (in $000)
Calculating Depreciation Expense Next, we calculate the depreciation expense for June. The formula for depreciation expense is:
Depreciation Expense = Depreciation Rate × Ending Inventory
We are given a depreciation rate of 25%, which can be written as 0.25. Therefore,
Depreciation Expense = 0.25 × $70 = $17.5 (in $000)
Final Answer Therefore, the inventory depreciation expense for June is $17.5 (in $000), which means $17,500.
Examples
Inventory depreciation is a common concept in accounting. For example, a clothing store might need to depreciate its inventory at the end of a season to account for unsold items that are no longer in style. Similarly, a technology company might need to depreciate its inventory of older electronics as newer models are released. Understanding how to calculate depreciation expense is important for businesses to accurately report their financial performance.
The inventory depreciation expense for June is $17.5 (in $000), which means $17,500. This is calculated by first determining the ending inventory and then applying the depreciation rate to that value.
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