Question

ABC Company's Accounting year ends on December 31. Equipment was purchased on June 30 of year 1 for $330,000. So, first year depreciation will be based on only 6 months of ownership. The equipment is expected to have a useful life of 5 years, or 15,000 operating hours, and a residual value of $30,000. Compute the depreciation expense for the years of ownership using the unit of production and double declining balance depreciation methods. Actual usage: 4,500 hours first year; 3,250 hours second year; 2,000 hours third year; 1,000 hours fifth year; and 1,00 hours sisth year.

Year 1 (6 months only)

Year 2

Year 3

Year 4

Year 5

Year 6 (6 months only)

Answer 1

Under Double Declained Balance Method

Year - a	Net Book value, beginning of year - b	Double declained depreciation - c = b/Life of assets*2	Net book value, End of the year - d = b-c
Year 1	$                        330,000	$330,000/5*2*6/12 = $66,000	$                       264,000
Year 2	$                        264,000	$                                              105,600	$                       158,400
Year 3	$                        158,400	$                                                63,360	$                         95,040
Year 4	$                          95,040	$                                                38,016	$                         57,024
Year 5	$                          57,024	$                                                22,810	$                         34,214
Year 6	$                          34,214	$                                                  4,214	$                         30,000

Under Activity Method

Year - a	Depreciable value ($330,000-$30,000)	Number of hours used - c	Depreciation expense - d = b/15,000*c
Year 1	$                   300,000	4,500	$                             90,000
Year 2	$                   300,000	3,250	$                             65,000
Year 3	$                   300,000	2,000	$                             40,000
Year 4	$                   300,000	4,150	$                             83,000
Year 5	$                   300,000	1,000	$                             20,000
Year 6	$                   300,000	100	$                               2,000

Please note that, number of hours used for the year 4 not given in question. we have calculated balance from total 15,000 after deducting other years usage

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