Question

On October 1, 2018, the Allegheny Corporation purchased machinery for $191,000. The estimated service life of the machinery is 10 years and the estimated residual value is $4,000. The machine is expected to produce 340,000 units during its life.

Required:
Calculate depreciation for 2018 and 2019 using each of the following methods. Partial-year depreciation is calculated based on the number of months the asset is in service.

1. Straight line.
2. Sum-of-the-years’-digits.
3. Double-declining balance.
4. One hundred fifty percent declining balance.
5. Units of production (units produced in 2018, 17,000; units produced in 2019, 32,000).

Answer 1

Solution 1:

Straight line method:

Depreciation 2018 = [($191000 - $4000)/ 10] *3/12 = $4,675

Depreciation 2019 = ($191000 - $4000)/ 10 = $18,700

Solution 2:

Sum of the years' digit method:

Sum of years' digits = 10+9+8+7+6+5+4+3+2+1 = 55

Depreciation 2018 = [($191000 - $4000)*10/55] *3/12 = $8,500

Depreciation 2019 = ($191000 - $4000)*9/55 = $30,600

Solution 3:

Double declining Balance:

Double declining rate = (1/10)*2 = 20%

Depreciation 2018 = $191000*20%*3/12 = $9,550

Net Book Value at the beginning of 2019 = $191000- $9550 = $181,450

Depreciation 2019 = $181450*20% = $36,290

Solution 4:

150% declining Balance:

150% declining rate = (1/10)*150% = 15%

Depreciation 2018 = $191000*15%*3/12 = $7,162.50

Net Book Value at the beginning of 2019 = $191000- $7162.50 = $183,837.50

Depreciation 2019 = $183837.50*15% = $27,575.625

Solution 5:

Units of production method:

Depreciation expense per unit of production = ($191,000 -$4,000) / 340,000 = $0.55 per unit

Depreciation 2018 = $0.55*17000*3/12 = 2,337.50

Depreciation 2019 = $0.55*32000 = $17,600