Question

Mark bought equipment on 1/2/18 for 18000 the equipment is expected to remain in service for 4 years and operate for 3750 hours at the end of its useful life it will have a residual value of 3000 the equipment operates for 375 hours the first year and 1125 hours the second year 1500 hours the third and 750 hours the fourth year prepare a schedule of deprecation expense accumulated deprecation and book value per year for the equipment under 3 depreciation methods straight line units of production and double declining

Answer 1

Cost = 18,000

Useful life = 4 years

Residual value = 3,000

STRAIGHT LINE METHOD

Depreciation under Straight line method = (cost - residual value) / useful life

= (18,000 - 3,000) / 4

= 3,750

Year	Cost	Depreciation expense	Accumulated depreciation	Book value
1	18,000	3,750	3,750	14,250
2	18,000	3,750	7,500	10,500
3	18,000	3,750	11,250	6,750
4	18,000	3,750	15,000	3,000

UNITS OF PRODUCTION METHOD

Depreciation under units of production method = (cost - residual value) * hours this year / total estimated hours

Year	Cost	Depreciation expense	Accumulated depreciation	Book value
1	18,000	1,500 [(18,000-3,000)*375/3,750]	1,500	16,500
2	18,000	4,500 [(18,000-3,000)*1,125/3,750]	6,000	12,000
3	18,000	6,000 [(18,000-3,000)*1,500/3,750]	12,000	6,000
4	18,000	3,000 [(18,000-3,000)*750/3,750]	15,000	3,000

DOUBLE DECLINING BALANCE METHOD

Depreciation under Double declining balance method = (cost-accumulated depreciation)/useful life*2

Year	Cost	Depreciation expense	Accumulated depreciation	Book value
1	18,000	9,000 [(18,000-0)/4*2]	9,000	9,000
2	18,000	4,500 [(18,000-9,000)/4*2]	13,500	4,500
3	18,000	1,500	15,000	3,000
4	18,000	0	15,000	3,000

* Depreciation in the year 3 = [(18,000-13,500)/4*2] = 2,250

* Deprecition cannot be made below the salvage value. So depreciation expense in the year 3 is limited to 1,500. No deprecition expense will be recorded in the year 4.