Question

Calculate the amount of depreciation to report during the year ended December 31 for equipment that was purchased for 72,000 on October 1. The equipment has been estimated residual value of 9,000 and estimated useful life of 5 years or 20,000 hours . Assume the equipment was used for 1,000 hours from October 1 to December 31 and the company uses a.) straight line b.) double declining balance and c.) units by production. Depreciation

Answer 1

Requirement a)

Straight line Method
A	Cost	$              72,000
B	Residual Value	$                 9,000
C=A - B	Depreciable base	$              63,000
D	Life [in years left ]	5
E=C/D	Annual SLM depreciation	$              12,600

	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
Till December 31	$     72,000	$      3,150	$     68,850	$     3,150

Requirement b)

Double declining Method
A	Cost	$    72,000.00
B	Residual Value	$      9,000.00
C=A - B	Depreciable base	$    63,000.00
D	Life [in years]	5
E=C/D	Annual SLM depreciation	$    12,600.00
F=E/C	SLM Rate	20.00%
G=F x 2	DDB Rate	40.00%

	Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value	Accumulated Depreciation
Till December 31	1	$     72,000.00	40.00%	$ 7,200.00	$ 64,800.00	$    7,200.00

Requirement c)

Units of Production method
A	Cost	$    72,000.00
B	Residual Value	$      9,000.00
C=A - B	Depreciable base	$    63,000.00
D	Usage in units(in Hours)	20000
E	Depreciation per Hours	$               3.15

	Year	Book Value	Usage	Depreciation expense	Ending Book Value	Accumulated Depreciation
Till December 31	2017	$     72,000.00	1000	$      3,150.00	$ 68,850.00	$    3,150.00