Calculate the inventory depreciation expense for August using a 25% depreciation rate.
| | Begin Inv. | Purchases | COGS |
| :----- | :---------- | :-------- | :--- |
| June | 50 | 20 | 60 |
| July | 10 | 70 | 50 |
| August | 30 | 40 | 20 |
Answer (1)
Calculate the ending inventory for August: Ending Inventory = Beginning Inventory + Purchases - COGS = $30,000 + $40,000 - $20,000 = $50,000.
Calculate the depreciation expense for August: Depreciation Expense = Ending Inventory * Depreciation Rate = $50,000 * 0.25 = $12,500.
The inventory depreciation expense for August is $12 , 500 .
Explanation
Understanding the Problem We are given the beginning inventory, purchases, and COGS (Cost of Goods Sold) for August, as well as the depreciation rate. We need 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
For August, we have: Beginning Inventory = $30,000 Purchases = $40,000 COGS = $20,000
So, the ending inventory for August is:
Ending Inventory = $30,000 + $40,000 - $20,000 = $50,000
Calculating Depreciation Expense Next, we 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 = $50,000 * 0.25 = $12,500
Final Answer Therefore, the inventory depreciation expense for August is $12,500.
Examples
Inventory depreciation is a common concept in accounting. For example, a clothing store might need to depreciate its inventory at the end of each season to account for changes in fashion. Similarly, a technology store might need to depreciate its inventory of electronics as newer models are released. Understanding how to calculate depreciation expense is therefore important for businesses to accurately report their financial performance.
