Question

Equipment purchased at the beginning of the fiscal year for $840,000 is expected to have a useful life of 10 years, or 400,000 operating hours, and a residual value of $40,000. Compute the depreciation for the first and second years of use by each of the following methods:

a) straight-line

b) units-of-production (10,000 hours first year; 15,000 hours second year)

c) declining-balance at twice the straight-line rate

(Round the answer to the nearest dollar.)

Answer 1

Answer:

1

Depreciation rate under Straight Line Method

=Cost-salvage value/ life of the Asstes

=840,000-40,000/10

=80,000 depreciation each year

	First year	Second year
Depreciation Expanses	80,000	80,000

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Depreciation rate under unit of production method

=Cost-salvage value/ Unit produced during the life of assets

=840,000-40,000/400,000 Hour

=$2 deprecation per Hour

Year	Hour	Rate of Depreciation	Annual Dep
	A	B	C=A*B
1	10,000	2	20,000
2	15,000	2	5130

	First year	Second year
Depreciation Expanses	20,000	30,000

______________________________________________________________________

C.)

Depreciation rate under (DDB) Double decline Method

Depreciation rate under Straight Line Method= 1/ 10 years=10%

Depreciation rate under (DDB) Double decline Method

= 2 x Depreciation rate under Straight Line Method

=2 x 10

=20%

Double Declining Method
Year	Book Value of Beg yr	Dep Rate	=	Annual Dep	Accumulated Depreciation	Book Value
	A	B		C=A*B		A-C
1	840,000	20.00%	=	168000	168000	672,000
2	672,000	20.00%	=	134400	302400	537,600

	First year	Second year
Depriciation Expanses	168,000	134400