Question

You are a financial analyst for Loch Motor Company and have been asked to determine the impact of alternative depreciation methods. For your analysis, you have been asked to compare methods based on a machine that cost $206,000. The estimated useful life is 12 years, and the estimated residual value is $46,160. The machine has an estimated useful life in productive output of 222,000 units. Actual output was 31,000 in year 1 and 27,000 in year 2.

Required:

1. For years 1 and 2 only, prepare separate depreciation schedules assuming: (Do not round intermediate calculations and round your final answers to the nearest dollar amount.)

Year	Deprecation expense	accumulated deprecation	net book vaule
at acquistion
1
2

a. Straight-line method.

b. Units-of-production method.

c. Double-declining-balance method.

Answer 1

Depreciation under

Double declining balance method = 2*SLM (straight line method)

In double declining method deprecation is charged until the asset value reaches its residual value.