Question

Strong Metals Inc. purchased a new stamping machine at the beginning of the year at a cost of $1,330,000. The estimated residual value was $70,000. Assume that the estimated useful life was five years and the estimated productive life of the machine was 300,000 units. Actual annual production was as follows:

Year	Units
1	70,000
2	67,000
3	50,000
4	73,000
5	40,000

Required:

1. Complete a separate depreciation schedule for each of the alternative methods.

year	depreaction expense	accumulated deprecation	net book vaule
at accuisition
1
2
3
4
5

a. Straight-line.

b. Units-of-production.

c. Double-declining-balance.

Answer 1

a.
In case of straight line method equal amount of depreciation expense would be charged for each year over the life of asset.
Depreciation expense	(Cost - Salvage value)/No of useful life
Depreciation expense	(1330000-70000)/5
Depreciation expense	1260000/5
Depreciation expense	$252,000
Depreciation schedule for straight line depreciation
t	Depreciation expense	Accumulated depreciation	Net book value (Cost - Accumulated depreciation)
At acquisition			$1,330,000
1	$252,000	$252,000	$1,078,000
2	$252,000	$504,000	$826,000
3	$252,000	$756,000	$574,000
4	$252,000	$1,008,000	$322,000
5	$252,000	$1,260,000	$70,000
b.
Calculation of depreciation under units of production method
Depreciation expense per unit	(1330000-70000)/300000
Depreciation expense per unit	4.2	per unit
Depreciation for year 1	$294,000.00	70000*4.2
Depreciation for year 2	$281,400.00	67000*4.2
Depreciation for year 3	$210,000.00	50000*4.2
Depreciation for year 4	$306,600.00	73000*4.2
Depreciation for year 5	$168,000.00	40000*4.2
Depreciation schedule for units of production method
Year	Depreciation expense	Accumulated depreciation	Net book value (Cost - Accumulated depreciation)
At acquisition			$1,330,000
1	$294,000	$294,000	$1,036,000
2	$281,400	$575,400	$754,600
3	$210,000	$785,400	$544,600
4	$306,600	$1,092,000	$238,000
5	$168,000	$1,260,000	$70,000
c.
Calculation of depreciation under double declining method
Double declining method rate	2*(1/No of useful life)
Double declining method rate	2*(1/5)
Double declining method rate	40.00%
Depreciation for year 1	$532,000.00	1330000*40%
Depreciation for year 2	$319,200.00	798000*40%
Depreciation for year 3	$191,520.00	478800*40%
Depreciation for year 4	$114,912.00	287280*40%
Depreciation for year 5	$102,368.20	172368*40%+33421
Depreciation schedule under double declining method
Year	Depreciation expense	Accumulated depreciation	Net book value (Cost - Accumulated depreciation)
At acquisition			$1,330,000
1	$532,000	$532,000	$798,000
2	$319,200	$851,200	$478,800
3	$191,520.00	$1,042,720	$287,280
4	$114,912.00	$1,157,632	$172,368
5	$102,368.20	$1,260,000	$70,000
At end of year 5 the value of equipment should be $70,000 and thus the remaining value of equipment is depreciated.