Question

Ivanhoe Company purchased a new machine on October 1, 2017, at a cost of $ 87,800. The company estimated that the machine has a salvage value of $ 8,800. The machine is expected to be used for  64,200 working hours during its  8-year life.

Compute depreciation using the following methods in the year indicated.

Declining-balance using double the straight-line rate for 2017 and 2018. (Round answers to 0 decimal places, e.g. 125)

		2017		2018
Depreciation using the Declining-balance method		$ enter a dollar amount		$ enter a dollar amount

Calculate the depreciation cost per hour. (Round answer to 2 decimal places, e.g. $1.25)

Depreciation cost per hour

$ enter the depreciation cost per hour in dollars rounded to 2 decimal places

Units-of-activity for 2017, assuming machine usage was  410 hours. (Round answer to 0 decimal places, e.g. 125)

Depreciation using the Units-of-activity method for 2017   $ enter the depreciation using the Units-of-activity method in dollars rounded to 0 decimal places

Answer 1

• All working forms part of the answer
• Double Declining balance method

A	Cost	$            87,800.00
B	Residual Value	$              8,800.00
C=A - B	Depreciable base	$            79,000.00
D	Life [in years]	8
E=C/D	Annual SLM depreciation	$              9,875.00
F=E/C	SLM Rate	12.50%
G=F x 2	DDB Rate	25.00%

Depreciation for 2017 = $ 87,800 x 25% x 3months/12months = $ 5487.50 = $ 5,488

Depreciation for 2018 = (87800 – 5488) x 25% = $ 20,578

• Units of Production Method

A	Cost	$            87,800.00
B	Residual Value	$              8,800.00
C=A - B	Depreciable base	$            79,000.00
D	Usage	64,200 hours
E	Depreciation	$                       1.23 per hour

Depreciation Cost per hour = $ 1.23 per hour

--Depreciation using the Units of Activity Method for 2017 = 410 hours x $ 1.23 = $ 504