Question

Ivanhoe Ltd. purchased a new machine on April 4, 2014, at a cost of $188,000. The company estimated that the machine would have a residual value of $18,000. The machine is expected to be used for 10,000 working hours during its four-year life. Actual machine usage was 1,400 hours in 2014; 2,200 hours in 2015; 2,300 hours in 2016; 2,100 hours in 2017; and 2,000 hours in 2018. Ivanhoe has a December 31 year end.

Calculate depreciation for the machine under each of the following methods: (Round expense per unit to 2 decimal places, e.g. 2.75 and final answers to 0 decimal places, e.g. 5,275.) (1) Straight-line for 2014 through to 2018. 2014 expense $enter a dollar amount 2015 expense $enter a dollar amount 2016 expense $enter a dollar amount 2017 expense $enter a dollar amount 2018 expense $enter a dollar amount (2) Diminishing-balance using double the straight-line rate for 2014 through to 2018. 2014 expense $enter a dollar amount 2015 expense $enter a dollar amount 2016 expense $enter a dollar amount 2017 expense $enter a dollar amount 2018 expense $enter a dollar amount (3) Units-of-production for 2014 through to 2018. 2014 expense $enter a dollar amount 2015 expense $enter a dollar amount 2016 expense $enter a dollar amount 2017 expense $enter a dollar amount 2018 expense $enter a dollar amount

Which method results in the highest depreciation expense over the life of the asset? Highest net income? Highest cash flow? Which method results in the highest net income? Which method results in the highest cash flow?

Answer 1

Calculate depreciation for the machine under each of the following methods: (Round expense per unit to 2 decimal places, e.g. 2.75 and final answers to 0 decimal places, e.g. 5,275.) (1) Straight-line for 2014 through to 2018. 2014 expense (188000-18000/4)*9/12 = 31875 2015 expense 31875*12/9 = 42500 2016 expense 42500 2017 expense 42500 2018 expense 31875*3/9 = 10625 (2) Diminishing-balance using double the straight-line rate for 2014 through to 2018. 2014 expense 188000*50%*9/12 = 70500 2015 expense 188000*50%*3/12+188000*50%*50%*9/12 = 58750 2016 expense 188000*50%*50%*3/12+188000*50%*50%*50%*9/12 = 29375 2017 expense 8813 2018 expense 2562 (3) Units-of-production for 2014 through to 2018. 2014 expense 17*1400 = 23800 2015 expense 37400 2016 expense 39100 2017 expense 35700 2018 expense 34000

Which method results in the highest depreciation expense over the life of the asset? All of three method Which method results in the highest net income? All of three method Which method results in the highest cash flow? All of three method