Blue Corporation purchased a new machine for its assembly process on August 1, 2020. The cost...

Blue Corporation purchased a new machine for its assembly process on August 1, 2020. The cost of this machine was $169,800. The company estimated that the machine would have a salvage value of $16,800 at the end of its service life. Its life is estimated at 5 years, and its working hours are estimated at 20,000 hours. Year-end is December 31. Compute the depreciation expense under the following methods. Each of the following should be considered unrelated. (Round depreciation rate per hour to 2 decimal places, e.g. 5.35 for computational purposes. Round your answers to 0 decimal places, e.g. 45,892.) (a) Straight-line depreciation for 2020 $enter a dollar amount (b) Activity method for 2020, assuming that machine usage was 800 hours $enter a dollar amount (c) Sum-of-the-years'-digits for 2021 $enter a dollar amount (d) Double-declining-balance for 2021

Expert Solution

Calculation of Depreciation
Purchase date	01.08.2020
Purchase Price	169800
Salvage Value	16800
Life	5			years
Working Hours	20000			hours

(a) Straight-line depreciation for 2020 $enter a dollar amount

lIfe of the machine is 5 years or to say 60 months.
The Machine was purchased on 01 August 2020 so for the year ending 31 Dec 2020 this machine is used for 5 mon ths.
Depreciable Value = 169800-16800 =			153000
Depreciation for year 2020 for 5 months = (153000*5)/60 =		$ 12,750.00

(b) Activity method for 2020, assuming that machine usage was 800 hours $enter a dollar amount

In case of Activity Method of Depreciation, we need to consider the level of activity achieved by the Machine in the given year out of its total capacity for life.
So we have total capacity =			20000	hours
Depreciable Value = 169800-16800 =			153000
Rate of depreciation per hour = 153000/20000 hrs =		7.65
Hours utilised for the year 2020 =	800			hrs
Activity Based depreciation for the year 2020 = 800 hrs * 7.65 =		$ 6,120.00

(c) Sum-of-the-years'-digits for 2021 $enter a dollar amount

Year	Depreciation Base	Remaining Life of machine	Depreciation Fraction	Depreciation Expense	Book Value
2020	153000	5	5/15	51000	102000
2021	153000	4	4/15	$ 40,800.00	61200
2022	153000	3	3/15	30600	30600
2023	153000	2	2/15	20400	10200
2024	153000	1	1/15	10200	0
		15
So, the depreciation Amount for the year 2021 using the sum of years digit method = $ 40800.00

(d) Double-declining-balance for 2021

In the Double declining balance method for depreciation, we use the SLM depreciation multiplied by two. Meaning, the Asset is depreciated at an accelerated rate. Meaning the Asset is depreciated at double the depreciation Rate for SLM.
Depreciation as per SLM for the year 2020 = 153000*5/60 =	12750
So the depreciation Amount for 2021 as per double declining Balance Method of depreciation = 30600*2 =	25500
Depreciation as per SLM for the year 2021 = 153000/5 =	30600
So the depreciation Amount for 2021 as per double declining Balance Method of depreciation = 30600*2 =	61200

Total depreciation till 2021 = 25500+61200 =	86700
Balance in Asset Account = 169800 - 86700 =	83100

ekkarill92 answered 2 years ago

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