Question

Financial Accounting Fixed Assets & Depreciation

On January 1, 2019, BonJovi Incorporated purchased a $50,000 piece of equipment. The equipment has a 4 year expected useful life and a $10,000 estimated residual value. It is estimated that the equipment will be operated 20,000 hours over its lifetime. In the first year, the equipment actually ran 6,800 hours. In the second year, the equipment was utilized 4,200 hours.

Compute the annual depreciation expense and book value for the first two years of the asset’s life assuming the use of:

• straight line method
• units of output method
• double declining balance method

Financial statement outlines for each scenario are provided below:

Straight Line Method:

On the Income Statement:

                                   2019                 2020

Depreciation Expense

On the Balance Sheet:

Asset
Accumulated Depreciation
Book Value

Units of Output Method:

On the Income Statement:

                                   2019                 2020

Depreciation Expense

On the Balance Sheet:

Asset
Accumulated Depreciation
Book Value

Double Declining Balance Method:

On the Income Statement:

                                   2019                 2020

Depreciation Expense

On the Balance Sheet:

Asset
Accumulated Depreciation
Book Value

Answer 1

Straight Line Method
On the Income Statement	2019	2020
Depreciation Expense	10000	10000
On the Balance sheet	2019	2020
Asset	50000	50000
Accumulated depreciation	-10000	-20000
Book Value	40000	30000
Units of output Method
On the Income Statement	2019	2020
Depreciation Expense	13600	8400
On the Balance sheet	2019	2020
Asset	50000	50000
Accumulated depreciation	-13600	-22000
Book Value	36400	28000
Double Declining Balance Method
On the Income Statement	2019	2020
Depreciation Expense	25000	12500
On the Balance sheet	2019	2020
Asset	50000	50000
Accumulated depreciation	-25000	-37500
Book Value	25000	12500

Workings:-

Particuars	Amt. in $	Workings
Cost on January 1,2019	50000
Salvage value	10000
Useful life (in years)	4
Rate of depreciation	25.00%	(1/4*100)
Expected life in hours	20000
Hours used in 2019	6800
Hours used in 2020	4200
Depreciation for 2019 as per straight line method	10000	(50000-10000)/4
Depreciation for 2020 as per straight line method	10000	(50000-10000)/4
Depreciation for 2019 as per double declining method	25000	(50000*25%*2)
Depreciation for 2020 as per double declining method	12500	(50000-25000)*(25%*2)
Depreciation for 2019 as per units of output method	13600	(50000-10000)/20000*6800
Depreciation for 2020 as per units of output method	8400	(50000-10000)/20000*4200