Question

Twilight Manufacturing's property, plant and equipment records reveal the following information:

Equipment 1. 2. 3. 4.
Cost 50,000 60,000 120,000 90,000
Residual value 12,000 8,000 None 10,000
Purchase date December,2013 Oct 18,2014 June 12,2014 May3,2014
Depreciation method Straight line Units of Production Double Declining Balance Straight line
Estimated useful life 5 years 50,000 units 10 years 8years
Units produced in 2014 2,000 5,000 6,000 8,000

Calculate the depreciation expense for each equipment item for the year ended December 31, 2014, using the nearest whole month method.

Answer 1

Equipment	Calculation	Depreciation Expense
1	($50,000 - $12,000)/5 years	$                               7,600
2	($60,000 - $8,000)/50,000 x 5,000 units	$                               5,200
3	$120,000 x 20% x 7 month/12 month	$                             14,000
4	($90,000 - $10,000)/8 years x 8/12	$                               6,667

(1) Straight Line = (Cost - Salvage)/Life

(2) Units of Production = (Cost - Salvage)/Total units * Units during period

(3) Double declining :-

DDB Rate = (1/Life) * 2

= (1/10) * 2 = 20%

Cost * 20% * 7 month/12 month

(4) Straight Line = [(Cost - Salvage)/Life] * 8/12