Question

Q2. On 1st April 2008 Abdulla installs a new machinery costing SAR 312,000 with a five year life and estimated salvage value of SAR28000. Management estimates that the machine will produce 1136000 units of the product during its lifetime. Actual units of production were as follows: 1st year 245600 units, 2nd year 230400 units, 3rd year 227000 units, 4th year 232600 units & 5th year 200400 units. Compute depreciation Expenses under Straight-line method, Double declining balance method and Units of production Method method the machine must not be depreciated below its estimated salvage value.

Answer 1

A) Straight Line Method
Annual Depreciation by SLM = (312000-28000)/5
56,800
Year	Depreciation Expense
1	56800
2	56800
3	56800
4	56800
5	56800
B) Calculation of depreciation by double declining balance method
SLM Depreciation Rate = 1 / 5 *100
= 20%.
Depreciation rate for Double Declining balance method = 20%*2 = 40%
Year	Opening Carrying Value	Depreciation Expense	Carrying Value
			312,000
1	312,000	124,800	187,200
2	187,200	74,880	112,320
3	112,320	44,928	67,392
4	67,392	26,957	40,435
5	40,435	12,435	28,000
C)Unit of Production method
Depreciation per unit of production = (312000-28000)/1136000
= $0.25
Year	Units of Production	Depreciation Expense	Carrying Value
			272000
1	245600	61400	250600
2	230400	57600	193000
3	227000	56750	136250
4	232600	58150	78100
5	200400	50100	28000