Question

Comparing Three Depreciation Methods

Waylander Coatings Company purchased waterproofing equipment on January 6 for $540,600. The equipment was expected to have a useful life of four years, or 8,000 operating hours, and a residual value of $44,600. The equipment was used for 3,000 hours during Year 1, 2,500 hours in Year 2, 1,400 hours in Year 3, and 1,100 hours in Year 4.

Required:

1. Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (b) the units-of-output method, and (c) the double-declining-balance method. Also, determine the total depreciation expense for the four years by each method.

Note: FOR DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar.

Depreciation Expense
Year	Straight-Line Method	Units-of-Output Method	Double-Declining-Balance Method
Year 1	$	$	$
Year 2	$	$	$
Year 3	$	$	$
Year 4	$	$	$
Total	$	$	$

2. What method yields the highest depreciation expense for Year 1?

3. What method yields the most depreciation over the four-year life of the equipment?

Answer 1

1. Answer:
Year	Straight Line Depreciation Method	Units of Output Method	Double Declining Balance Method
1	124000	186000	270300
2	124000	155000	135150
3	124000	86800	67575
4	124000	68200	33788
Total	496000	496000	506813
Working:
Cost of Asset	540600
Useful Life of Asset	4
Salvage Value of asset	44600
Straight Line Depreciation Method:
Depreciation per year	=(Cost of Asset-Salavage Value)/Useful Life Years
	=(540600-44600)/4
	=124000
Units of Output Method:
Total Hours	=3000+2500+1400+1100
	=8000
Calculation of Depreciation rate per hour	=(Cost of Asset-Salavage Value)/Total Hours
	=(540600-44600)/8000
	=62
Year	Hours	Depreciation for the year =Depreciation rate per hour*Hours During the year
1	3000	186000(3000*62)
2	2500	155000(2500*62)
3	1400	86800(1400*62)
4	1100	68200(1100*62)
Double Declining Balance Method:
Calculation of Double Declining Depreciation Rate	=Depreciation Rate Under Straight Line Depreciation Method*2
	=100/4*2
	=50%
Year	Opening WDV	Depreciation for the year=Opening WDV*Double Declining Rate	Closing WDV
1	540600	270300(540600*50%)	270300
2	270300	135150(270300*50%)	135150
3	135150	67575(135150*50%)	67575
4	67575	33788(67575*50%)	33787

2. Double Declining balance method yields highest depreciation expense for year 1 amounting to $270300

3. Double Declining balance method yields most depreciation expense for 4 years life of the equipment.