Question

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

Answer 1

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