Question

veal corporation bought a machine at the beginning of the year at the cost of $18,600. The estimated useful life was ten years, and the residual value was $600. Assume that the estimated productive life of the machine is 100,000 units. Annual production for the first 3 years was: 35,000 units in year 1: 25,000 units in year 2: and 18,000 units in year 3.

What is the deprecation cost of the machine? Using the straight-line method what is the deprecation cost reported in year1? What is the book value at the end of year 2. Using the units of production method, what is the depecation cost for year 1? Using the double declining balance method, what is the book value at the end of year 1?

Answer 1

Straight line Method
Cost of Machine	$   18,600
Less: salvage value	$         600
Depreciable value	$   18,000
Life of Equipment	10 Years
Depreciation ($18,000 / 10)	$     1,800
Depreciation expense for 1st year	$     1,800
Book value at the end of 2nd year ($18,600-$1,800-$1,800)	$   15,000

Depreciation under Activity based Method
Year - a	Depreciable value ($18,600-$600)	Number of units produced - c	Depreciation expense - d = b/100,000*c	Accumulated depreciation	Book value
Year 1	$                     18,000	35,000	$                               6,300	$            6,300	$      12,300

Depreciation under DDB Method
Year - a	Net Book value, beginning of year - b	Double declained depreciation - c = b/Life of assets*2	Net book value, End of the year - d = b-c
Year 1	$                          18,600	$                                                  3,720	$                         14,880

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