Question

Geddie Products purchased a machine for $60,000 on July 1, 2020. The company estimates that the useful life of the asset is 4 years, and its life in hours = 10,000 hours. The estimated salvage value is 0. During 2020, the hours used were 1,250 hours.

1) Calculate the Depreciable Base and the depreciation expense of 2020 using the Straight-line method

2) Calculate the depreciation expense of 2020 using the double-declining balance method

3) Calculate the depreciation expense of 2021 using the double-declining balance method

Answer 1

Answer 1:

Depreciation expense: $ 15,000

Explanation:

Depreciation (as per SLM) = (Cost - salvage value) / Number of years

Now,

A	Cost	$ 60,000
B	Residual / Salvage Value	$         -
C	Number of years	4
(A-B)/C	Depreciation (SLM)	$ 15,000

Answer 2 and 3:

2020 = $ 30,000

2021 = $ 15,000

Explanation:

Depreciation Rate (as per double declining method) = 100 / Years * 2

Now,

A	Cost	$ 60,000
C	Number of years	4
(100*C*2) =D	Depreciation Rate (Double declining method)	50%

Calculations for answer 2 and 3:

Year	Value at the beginning	Depreciation every year	Accumulated depreciation	Value at the end
2020	$                         60,000	$                           30,000	$                                30,000	$              30,000
2021	$                         30,000	$                           15,000	$                                45,000	$              15,000

In case of any doubt, please feel free to comment.