Question

On March 31, 2021, Canseco Plumbing Fixtures purchased equipment for $38,000. Residual value at the end of an estimated four-year service life is expected to be $2,000. The company expects the equipment to operate for 10,000 hours. The equipment operated for 2,600 and 3,400 hours in 2021 and 2022, respectively.


Required:
a. Calculate depreciation expense for 2021 and 2022 using straight line method.
b. Calculate depreciation expense for 2021 and 2022 using double-declining balance method.

Answer 1

a)Depreciation expense for 2021 and 2022 using straight line method is as follows:

  Depreciation expense p.a = (Cost - Salvage Value) / Useful Life

= ($38,000 - $2,000) / 4 Years

= $36,000 / 4 Years

= $9,000

1) Depreciation expense for 2021 for 9 months (March 31, 2021 to December 31,2021 )

= $9,000 * 9/12

= $6,750

Depreciation expense for 2021 for 9 months (March 31, 2021 to December 31,2021) is $6,750

2)Depreciation expense for 2022 for full year =

Depreciation under the straight line method will remain same for every year.

So Depreciation expense for 2022 for full year = $9,000

b)Depreciation expense for 2021 and 2022 using double-declining balance method is calculated as follows:

Depreciation expense under the Double-declining balance method = 1/4 *2*100

= 50%

1) Depreciation expense for 2021 for 9 months (March 31, 2021 to December 31,2021 )

= $38,000 * 50% *9/12

= $14,250   

Depreciation expense for 2021 for 9 months (March 31, 2021 to December 31,2021 ) is $14,250

2)Depreciation expense for 2022 is

= ($38,000 - $14,250 ) * 50%

= $11,875

Depreciation expense for 2022 is $11,875