Question

On March 1, 2015, a company bought equipment for 900.000. The estimated salvage value of the equipment after 5 years of useful life is 50.000. The estimated productive capacity of the equipment during its useful life is 1.000.000 units.

1) Calculate the depreciation for the year 2015, using the straight-line method.

2) If 180.000 units are produced in the year 2015 and 240.000 are produced in the year 2016, what is the book value of the equipment on December 31, 2016, using the activity method?

3) If the declining-balance depreciation method is used, what is the accumulated depreciation on December 31, 2016?

Answer 1

Answer :

1. Calculation of depreciation for the year 2015 using the straight-line method :

Depreciation = (Cost of asset - Salvage value) / Useful life

= (900,000 - 50,000) / 5 years

= 170,000

Depreciation for the year 2015 = 170,000 x 10 months / 12 months

= 141,667

2. Calculation of depreciation using the activity method :

Annual depreciation = (Cost of asset - Salvage value) x Units produced during the year / Estimated total production

Depreciation for the year 2015

= (900,000 - 50,000) x 180,000 units / 1,000,000 units

= 850,000 x 180,000 units / 1,000,000 units

= 153,000

Depreciation for the year 2016

= (900,000 - 50,000) x 240,000 units / 1,000,000 units

= 850,000 x 240,000 units / 1,000,000 units

= 204,000

Book value of the equipment on December 31, 2016

= Cost of asset - Depreciation for the year 2015 - Depreciation for the year 2016

= 900,000 - 153,000 - 204,000

= 543,000

3. Calculation of accumulated depreciation using declining-balance depreciation method :

Double declining derpreciation rate = 100% / Useful life x 2

= 100% / 5 years x 2

= 40%

Depreciation for the year 2015

= 900,000 x 40% x 10 months / 12 months

= 300,000

Depreciation for the year 2016

= (900,000 - 300,000) x 40%

= 240,000

Accumulated depreciation on December 31, 2016 :

= Depreciation for the year 2015 + Depreciation for the year 2016

= 300,000 + 240,000

= 540,000