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 (1)
Calculate the Goods Available for Sale (GAS): $GAS = Beginning\ Inventory + Purchases = $60,000 + $50,000 = 110 , 000 .
Calculate the Ending Inventory (EI): $Ending\ Inventory = GAS - COGS = $110,000 - $40,000 = 70 , 000 .
Calculate the Depreciation Expense: $Depreciation\ Expense = Depreciation\ Rate \times Ending\ Inventory = 0.25 \times $70,000 = 17 , 500 .
The inventory depreciation expense for June is $\boxed{ 17,500} .
Explanation
Understanding the Problem We are given the beginning inventory, purchases, and cost of goods sold (COGS) for June, as well as the depreciation rate. We need to calculate the inventory depreciation expense for June.
Calculating Goods Available for Sale First, we calculate the Goods Available for Sale (GAS) for June by adding the beginning inventory and purchases: GAS = Beginning\ Inventory + Purchases = $60,000 + $50,000 = $110,000
Calculating Ending Inventory Next, we calculate the Ending Inventory (EI) for June by subtracting the COGS from the GAS: Ending\ Inventory = GAS - COGS = $110,000 - $40,000 = $70,000
Calculating Depreciation Expense Finally, we calculate the depreciation expense for June by multiplying the depreciation rate by the ending inventory: Depreciation\ Expense = Depreciation\ Rate \times Ending\ Inventory = 0.25 \times $70,000 = $17,500
Final Answer Therefore, the inventory depreciation expense for June is $17,500.
Examples
Inventory depreciation is a common concept in accounting. For example, a store selling perishable goods like fruits and vegetables needs to account for spoilage. If a grocery store has $10,000 worth of produce at the end of the month and estimates a 5% spoilage rate, the depreciation expense would be $500. This helps the store accurately reflect the value of its inventory and manage its financial performance.
