Question
In: Accounting
A NEW ELECTRIC SAW FOR CUTTING LUMBER IN A FURNITURE MANUFACTURING PLANT HAS AN INSTALLED COST...
A
NEW ELECTRIC SAW FOR CUTTING LUMBER IN A FURNITURE MANUFACTURING
PLANT HAS AN INSTALLED COST OF P140,000 AND A 10-YEAR ESTIMATED
LIFE. IT WAS PLACED IN SERVICE ON JANUARY 1, 1987. THE PERMISSIBLE
SALVAGE VALUE OF THE SAW IS ZERO AT THE END OF 10 YEARS. WHAT WILL
BE THE
A.) CUMULATIVE DEPRECIATION COST THROUGH THE 6TH YEAR?
B.) DEPRECIATION COST DURING THE 6TH YEAR?
C.) BOOK VALUE AT THE END OF THE 6TH YEAR?
USE:
A.) STRAIGHT LINE
B.) DECLINING BALANCE METHOD
C.) SINKING FUND, i=8% COMPOUNDED ANUALLY
D.) SUM OF THE YEAR DEPRECIATION METHOD
E.) SERVICE OUTPUT METHOD SUPPOSE
THAT IT WILL BE USED FOR A TOTAL OF 10,000 HOURS OVER A PERIOD
OF 10 YEAR IN THE 6TH YEAR OF OPERATION, THE ESTIMATED USAGE IS 800
HOURS AND THE CUMULATIVE USAGE BY THE END OF YEAR 6 SHOULD BE ABOUT
6,400 HOURS.
Solutions
Expert Solution
1. Straight Line method:-
| Year | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 |
| Cost in beginning | 140000 | 126000 | 112000 | 98000 | 84000 | 70000 |
| Depreciation | 14000 | 14000 | 14000 | 14000 | 14000 | 14000 |
| BV at end | 126000 | 112000 | 98000 | 84000 | 70000 | 56000 |
| Cumulative depreciation | 84000 | |||||
| Depreciation of 6th year | 14000 | |||||
| Book value at end of 6th year | 56000 |
2. Declining Balance Method:-
| Depreciation Rate= 1/ No of years | 10% | |||||
| Year | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 |
| Cost in beginning | 140000 | 126000 | 113400 | 102060 | 91854 | 82668.6 |
| Depreciation | 14000 | 12600 | 11340 | 10206 | 9185.4 | 8266.86 |
| BV at end | 126000 | 113400 | 102060 | 91854 | 82668.6 | 74401.74 |
| Cumulative depreciation | 65598.26 | |||||
| Depreciation of 6th year | 8266.86 | |||||
| Book value at end of 6th year | 74401.74 |
3. Sinking Fund Depreciation=
Annual Depreciation= [ (FC -V) (i) ] / [ (1 + i)^(n) -1 ]
= [(140000-0)*(0.08)]/[(1+.08)^10-1]
A = 12943.03
Cumulative depreciation= A[(1 + i)^x - 1] / i
= (12943.03)[(1.08)^6-1]/0.08
= 94949.14
Book value at end of 6th year= 140000-94949.14
= 45050.86
4. Sum of Digits Method:-
| Year | No of year in reversible order | Depc Factor | |||||
| 1 | 10 | 0.181818 | |||||
| 2 | 9 | 0.163636 | |||||
| 3 | 8 | 0.145455 | |||||
| 4 | 7 | 0.127273 | |||||
| 5 | 6 | 0.109091 | |||||
| 6 | 5 | 0.090909 | |||||
| 7 | 4 | 0.072727 | |||||
| 8 | 3 | 0.054545 | |||||
| 9 | 2 | 0.036364 | |||||
| 10 | 1 | 0.018182 | |||||
| 55 | |||||||
| Year | 1987 | 1988 | 1989 | 1990 | 1991 | 1992 | |
| Cost in beginning | 140000 | 114545.5 | 95801.65 | 81866.87 | 71447.45 | 63653.18 | |
| Depreciation | 25454.54545 | 18743.8 | 13934.79 | 10419.42 | 7794.267 | 5786.653 | |
| BV at end | 114545.4545 | 95801.65 | 81866.87 | 71447.45 | 63653.18 | 57866.53 | |
| Cumulative depreciation | 82133.47 | ||||||
| Depreciation of 6th year | 5786.653 | ||||||
| Book value at end of 6th year | 57866.53 |
.5. Service output method :-
Depreciation per hour= FC-SV/ Total no of hours
= 140000/10000
=14 per hour
Cumulative depreciation till 6th year= 14*6400
= 102400
Annual depreciation of 6th year= 14*600
= 8400
BV at 6th year= 140000-102400
= 37600
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