Should you include NWCInv in calculating depreciation? If you look at the EOC solns for reading 29 question #1, CFAI calculates depreciation as (FCInv + WCInv)/(Life). They do the same in another question too. But if you come to Qn #27, they calculate depreciation as FCInv/Life, ignoring WCInv. What am i missing?
if i get you right, you are talking at the fitco question the 110, 000 is not working cap inv it is needed to install it, and by accounting rules remmber costs inccurent to get the assest in place and workings (shipping, installation) are capitalized with the asset this is different than working cap inv, where you need inventory to go along with the project and has nothing to do with the machine itself hope this helps
Basically, what he said. I’m sure you know that working capital = current assets - current liabilities, and you most likely know that accounts receivable, supplies, inventory and other such current assets are not considered to be depreciable assets: they are viewed as being used within a single year, and thus are expensed in that year. So depreciation in both Q. 1 and Q. 27 is equivalent to “(fixed capital + any installation costs)/life”; you probably just missed the ‘$73,000 in inventory investment’ part in Q. 1 (Fitco). That was the working capital portion. Q. 27 didn’t have any specific breakdown of ‘capital & installation’ costs, just a lump-sum figure.
Thanks a ton guys. Its clear now.