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QUESTION 1 (7 marks) A machine that caps soda bottles was purchased April 1, 2020 for...
QUESTION 1 A machine that caps soda bottles was purchased April 1, 2020 for $96,000; estimated useful life of 10 years and salvage value of $6,000. It is also estimated that the machine could cap a total of 360,000 bottles over its entire life. Calculate depreciation expense under the following independent assumptions: 1. Straight line depreciation, for the year ended Dec. 31, 2020. 2. Double declining balance depreciation for the year ended Dec. 31, 2020 and 2021. 3. Units of production depreciation for 2020 assuming 34,000 bottles were actually capped between April 1, 2020 and December 31, 2020. Record your answers and calculations below
Solutions
Expert Solution
| Cost of Asset = $96,000 | |||||||||
| Life = 10 years | |||||||||
| Salvage Value = $6,000 | |||||||||
| Machine Purchase date = April 1, 2020 | |||||||||
| 1) Straight Line Depreciation | |||||||||
| Annual Depreciation Expense = (Cost of Asset - Salvage Value ) / Life | |||||||||
| Annual Depreciation Expense = (96000 - 6000 ) / 10 | |||||||||
| Annual Depreciation Expense = $9000 | |||||||||
| Since the asset is purchased on 1st April and depreciation expense is calculated on 31st dec 2020, the depreciation will be charged only for 9month during first year | |||||||||
| Depreciation for year ended 31 Dec 2020 = 9000*9/12 | |||||||||
| Depreciation for year ended 31 Dec 2020 = $6,750 | |||||||||
| 2) Double Declining balance Depreciation | |||||||||
| Depreciation Rate = (100%/Total Life)*2 = (100%/10)*2 | |||||||||
| Depreciation Rate = 20% | |||||||||
| Since the asset is purchased on 1st April and depreciation expense is calculated on 31st dec 2020, the depreciation will be charged only for 9month during first year | |||||||||
| Depreciation for year ended 31 Dec 2020 = Cost * Depreciation rate * 9/12 | |||||||||
| Depreciation for year ended 31 Dec 2020 = 96000 * 20% * 9/12 | |||||||||
| Depreciation for year ended 31 Dec 2020 = $14,400 | |||||||||
| WDV for year ended 31 Dec 2020 = 96000-14400 = $81,600 | |||||||||
| Depreciation for year ended 31 Dec 2021 = WDV * Depreciation rate | |||||||||
| Depreciation for year ended 31 Dec 2021 = 81600*20% | |||||||||
| Depreciation for year ended 31 Dec 2021 = $16320 | |||||||||
| 3) Units of Production Method | |||||||||
| Total Units during life of asset = 360,000 | |||||||||
| Units produced during April to Dec 2020 = 34000 | |||||||||
| Depreciation for year ended 31 Dec 2021 = (Units Produced during year / Total Units ) * Cost of Asset | |||||||||
| Depreciation for year ended 31 Dec 2021 = (34000 / 360000 ) * 96000 | |||||||||
| Depreciation for year ended 31 Dec 2021 = $9066.67 | |||||||||
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