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

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	(206000-46160)/12
Depreciation expense	159840/12
Depreciation expense	$13,320
Depreciation schedule for straight line depreciation
Year	Depreciation expense	Accumulated depreciation	Net book value (Cost - Accumulated depreciation)
At acquisition			$206,000
1	$13,320	$13,320	$192,680
2	$13,320	$26,640	$179,360
b.
Calculation of depreciation under units of production method
Depreciation expense per unit	(206000-46160)/222000
Depreciation expense per unit	0.72	per unit
Depreciation for year 1	$22,320.00	31000*0.72
Depreciation for year 2	$19,440.00	27000*0.72
Depreciation schedule for units of production method
Year	Depreciation expense	Accumulated depreciation	Net book value (Cost - Accumulated depreciation)
At acquisition			$206,000
1	$22,320	$22,320	$183,680
2	$19,440	$41,760	$164,240
c.
Calculation of depreciation under double declining method
Double declining method rate	2*(1/No of useful life)
Double declining method rate	2*(1/12)
Double declining method rate	16.67%
Depreciation for year 1	$34,333.33	206000*16.67%
Depreciation for year 2	$28,611.11	(206000-34333.33)*16.67%
Depreciation schedule under double declining method
Year	Depreciation expense	Accumulated depreciation	Net book value (Cost - Accumulated depreciation)
At acquisition			$206,000
1	$34,333	$34,333	$171,667
2	$28,611	$62,944	$143,056