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

ekkarill92 answered 2 years ago
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