Question

1.   The data below refers to packaging equipment, bought on Jan/02/2018:

Equipment XPA 234
Total Cost	$261,000	Residual Value	$1,000
Useful Life	8 years	Total Working Hours Capacity	18,000 hours

Calculate the following:

1. The amount of depreciation for the year 2018 using the straight line method.

2. The depreciation for 2018 using the hours of operation depreciation method (same as the units of production method), knowing that the machine worked 4,300 hours during that year.

3. Create a depreciation schedule (table) for all years, using the double declining  

      method. Do not depreciate below the residual value.

4. Create a depreciation schedule for all years, using the sum of the years   

      method.

Answer 1

1. Depreciation Under Straight Line Method

Cost = 261000

Salvage Value = 1000

Useful Life = 8 years

Depreciation Base = Cost - Salavage Value = 261000 - 1000 = 260000

Yearly Depreciation = 260000 / 8 = 32500

The depreciation expense for 2018 = 32500

2. Hours of Operation method

Depreciation Rate = Depreciation Base / Estimated total working hours

= 260000 / 18000 = 14.44

2018 deprecaition = Deprecaition rate x Actual Hours = 14.44 x 4300 = 62092

Depreciation Expense is 62092

3. Double Declining Method

Under DDB method the deprecaition rate will be double the rate of straight line rate. Here use ful life is 8 year. So yearly 12.5% will write off under straight line (12.5 = 100 / 8 Years)

Under DDB method rate will be the 25% of Net book value(Not the depreciation base - double the straight line rate)

Double Declining Balance Method
Asset Details	Cost	Salvage	Rate
	261,000	1,000	25%
Asset Life	Useful Life	Total Depreciation
	8 Year	260,000
Depreciation Schedule
Period	Beginning Value	Depreciation	Ending Value
2018	261,000.00	65,250.00	195,750.00
2019	195,750.00	48,937.50	146,812.50
2020	146,812.50	36,703.13	110,109.38
2021	110,109.38	27,527.34	82,582.03
2022	82,582.03	20,645.51	61,936.52
2023	61,936.52	15,484.13	46,452.39
2024	46,452.39	11,613.10	34,839.29
2025	34,839.29	8,709.82	26,129.47
2026	26,129.47	6,532.37	19,597.10
2027	19,597.10	4,899.28	14,697.83
2028	14,697.83	3,674.46	11,023.37
2029	11,023.37	2,755.84	8,267.53
2030	8,267.53	2,066.88	6,200.65
2031	6,200.65	1,550.16	4,650.48
2032	4,650.48	1,162.62	3,487.86
2033	3,487.86	871.97	2,615.90
2034	2,615.90	653.97	1,961.92
2035	1,961.92	490.48	1,471.44
2036	1,471.44	367.86	1,103.58
2037	1,103.58	103.58	1,000.00
Total Depreciation	260,000.00

Stop Calculating depreciation in the year after the depreciable cost falls below the salvage value of the asset. During 2037 the asset opening value is 1103.58 , with this 25% will below the  salavage value of Asset. So adjustment should be done with Net books value - Salvage value.

4. Sum of year Method

In the sum-of-the-years - digits (SYD) method, the amount of depreciation to be recorded for any given period is calculated using fractions based on the estimated useful life of the asset.

Under the SYD method, the depreciable base (cost less estimated salvage value) is multiplied by a fraction that is determined using the useful life of the asset. The denominator of the fraction is a sum of all of the asset’s expected years of life.

Here 8 is the useful life . So sum of digits is 8+7+6+5+4+3+2+1 = 36

So in 1 year 8/36 of total depreciation

so in 2 nd year 7/36 of total depreciation

Sum of Year Digit Method
Asset Details	Cost	Salvage
	261,000	1,000
Asset Life	Useful Life	Total Depreciation
	8 Year	260,000
Deprecaition Schedule
Total Deprecition	Fraction	Deprciation
260000	8/36	57,777.78
260000	7/36	50,555.56
260000	6/36	43,333.33
260000	5/36	36,111.11
260000	4/36	28,888.89
260000	3/36	21,666.67
260000	2/36	14,444.44
260000	1/36	7,222.22
Total Deprection	260,000.00