Question

Comparing Three Depreciation Methods

Waylander Coatings Company purchased waterproofing equipment on January 6 for $682,800. The equipment was expected to have a useful life of four years, or 7,200 operating hours, and a residual value of $56,400. The equipment was used for 2,700 hours during Year 1, 2,200 hours in Year 2, 1,300 hours in Year 3, and 1,000 hours in Year 4.

Required:

1. Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (b) the units-of-output method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each method.

Note: FOR DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar.

Depreciation Expense

Year Straight-Line Method Units-of-Output Method Double-Declining-Balance Method

Year 1 $---------------------- $------------------------ $--------------------------

Year 2 $---------------------- $------------------------ $---------------------------

Year 3 $---------------------- $------------------------ $---------------------------

Year 4 $---------------------- $------------------------ $---------------------------

Total $---------------------- $------------------------ $---------------------------

2. What method yields the highest depreciation expense for Year 1?

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3. What method yields the most depreciation over the four-year life of the equipment?

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Answer 1

Question 1

Calculation of Depreciation as per Straight Line Method

Annual Depreciation as per Straight Line Method = Cost of Equipment - Salvage Value of Equipment / Useful Life of Equipment in Years

Cost of Equipment = $ 682,800

Salvage Value of Equipment = $ 56,400

Useful Life of Equipment in Years = 4 Years

Annual Depreciation = 682,800 - 56,400 / 4

Annual Depreciation = $ 156,600

Particulars	Amount
Year 1	156,600
Year 2	156,600
Year 3	156,600
Year 4	156,600
Total	626,400

Calculation of Depreciation Using Units of Output Method

Depreciation per Hour = Cost of Equipment - Salvage Value of Equipment / Useful Life of Equipment in Hours

Cost of Equipment = $ 682,800

Salvage Value of Equipment = $ 56,400

Useful Life of Equipment in Years = 7,200 Hours

Depreciation per Hour = 682,800 - 56,400 / 7,200

Depreciation per Hour = $ 87

	A	B	C=A*B
Particulars	Hours per Year	Depreciation Rate per Hour	Total Depreciation Expense
Year 1	2,700	87	234,900
Year 2	2,200	87	191,400
Year 3	1,300	87	113,100
Year 4	1,000	87	87,000
Total			626,400

Calculation of Depreciation as per Double Declining Balance Method

Annual Depreciation as per Straight Line Method = Cost of Equipment - Salvage Value of Equipment / Useful Life of Equipment in Years

Cost of Equipment = $ 682,800

Salvage Value of Equipment = $ 56,400

Useful Life of Equipment in Years = 4 Years

Annual Depreciation = 682,800 - 56,400 / 4

Annual Depreciation = $ 156,600

Depreciation Rate as per Double Declining Balance Method = Annual Amount of Depreciation / Amount Subject to Depreciation * 200%

= 156,600 / 626,400 * 200

= 50%

Amount Subject to Depreciation = Cost of Equipment - Salvage Value of Equipment

	A	B	C = A*B	D= A-C
Particulars	Opening Value	Depreciation Rate	Depreciation Expense	Ending Value
Year 1	682,800	50%	341,400	341,400
Year 2	341,400	50%	170,700	170,700
Year 3	170,700	50%	85,350	85,350
Year 4	85,350	50%	28,950*	56,400
Total			626,400

* Depreciation for Year 4 is $ 42,675 but the asset can not be depreciated below it's Salvage Value of $ 56,400 so year 4 depreciation has been adjusted to $ 28,950 accordingly.

Ending Value of Year is Opening Value of Another Year.

Question 2

The answer is Double Declining Balance Method.

Question 3

All the Method Yields the equal amount of depreciation over the life of the asset so everyone is yielding same amount of depreciation expense over the useful life of.the Equipment.