Question

SBS Company purchased a new machine on January 1, at a cost of $420,000. The machine has an expected useful life of four years and an expected salvage value of $40,000. The company expects to use the machine for 1,300 hours in the first year, 1,900 hours in the second year, and 900 hours in the third and fourth year, respectively.

(a) Calculate Depreciation Expenses for each year using Straight-Line Method

Year	Depreciation Expenses
1	$
2	$
3	$
4	$

(b) Calculate Depreciation Expenses for each year using Double-Declining-Balance Method

A working table is provided on the next page.

Year	Depreciation Expenses
1	$
2	$
3	$
4	$

(c) Calculate Depreciation Expenses for each year using Units of Production Method

Year	Depreciation Expenses
1	$
2	$
3	$
4	$

Working Table for Double-Declining-Balance Method

Year	Beginning NBV	Rate	Depreciation Expenses	Accumulated Depreciation	Ending NBV
1
2
3
4

Answer 1

• All working forms part of the answer
• Workings

--Straight Line Method

A	Cost	$          420,000.00
B	Residual Value	$            40,000.00
C=A - B	Depreciable base	$          380,000.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$            95,000.00

--Double Declining balance method

A	Cost	$          420,000.00
B	Residual Value	$            40,000.00
C=A - B	Depreciable base	$          380,000.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$            95,000.00
F=E/C	SLM Rate	25.00%
G=F x 2	DDB Rate	50.00%

---Units of Production Method

A	Cost	$          420,000.00
B	Residual Value	$            40,000.00
C=A - B	Depreciable base	$          380,000.00
D	Usage	5,000 [1300+1900+900+900]
E	Depreciation per …..	$                    76.00 per hours

• Requirements ‘a’

Year	Depreciation Expenses
1	$ 95,000
2	$ 95,000
3	$ 95,000
4	$ 95,000

• Requirement ‘b’

Year	Beginning NBV	Rate	Depreciation Expenses	Accumulated Depreciation	Ending NBV
1	$     420,000.00	50%	$       210,000.00	$      210,000.00	$           210,000.00
2	$     210,000.00	50%	$       105,000.00	$      315,000.00	$           105,000.00
3	$     105,000.00	50%	$         52,500.00	$      367,500.00	$             52,500.00
4	$       52,500.00		$ 12,500.00	$ 380,000	$ 40,000

Year	Depreciation Expenses
1	$       210,000.00
2	$       105,000.00
3	$         52,500.00
4	$ 12,500.00

• Requirement ‘c’

Year	Depreciation Expenses
1	$         98,800.00 [1300 x 76]
2	$       144,400.00 [1900 x 76]
3	$         68,400.00 [900 x 76]
4	$         68,400.00 [900 x 76]