Question

On January 1, 2018, the Allegheny Corporation purchased machinery for $148,000. The estimated service life of the machinery is 10 years and the estimated residual value is $16,000. The machine is expected to produce 400,000 units during its life.

Required:
Calculate depreciation for 2018 and 2019 using each of the following methods.

1. Straight line.
2. Sum-of-the-years'-digits.
3. Double-declining balance.
4. One hundred fifty percent declining balance.
5. Units of production (units produced in 2018, 48,000; units produced in 2019, 43,000).

Answer 1

• All working forms part of the answer
• Straight Line method

A	Cost	$        1,48,000.00
B	Residual Value	$            16,000.00
C=A - B	Depreciable base	$        1,32,000.00
D	Life [in years]	10
E=C/D	Annual SLM depreciation	$            13,200.00
Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
2018	$    1,48,000.00	$            13,200.00	$ 1,34,800.00	$       13,200.00
2019	$    1,34,800.00	$            13,200.00	$ 1,21,600.00	$       26,400.00

• Sum of Year digit: Sum of year digits = 1+2+3+4+5+6+7+8+9+10 = 55

A	Cost	$        1,48,000.00
B	Residual Value	$           16,000.00
C=A - B	Depreciable base	$        1,32,000.00
	Sum of digits	55
Year	Depreciable base	Formula	Depreciation expense	Accumulated Depreciation	Ending Book Value
2018	$    1,32,000.00	[132000 x 10/55]	$     24,000.00	$       24,000.00	$     1,24,000.00
2019	$    1,32,000.00	[132000 x 9/55]	$     21,600.00	$       45,600.00	$     1,02,400.00

• Double declining Balance

A	Cost	$        1,48,000.00
B	Residual Value	$            16,000.00
C=A - B	Depreciable base	$        1,32,000.00
D	Life [in years]	10
E=C/D	Annual SLM depreciation	$            13,200.00
F=E/C	SLM Rate	10.00%
G=F x 2	DDB Rate	20.00%
Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value	Accumulated Depreciation
2018	$    1,48,000.00	20.00%	29600	$   1,18,400.00	29600
2019	$   1,18,400.00	20.00%	23680	$       94,720.00	53280

• 150% declining balance method

A	Cost	$        1,48,000.00
B	Residual Value	$            16,000.00
C=A - B	Depreciable base	$        1,32,000.00
D	Life [in years]	10
E=C/D	Annual SLM depreciation	$            13,200.00
F=E/C	SLM Rate	10.00%
G=F x 1.5	DDB Rate	15.00%
Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value	Accumulated Depreciation
2018	$    1,48,000.00	15.00%	22200	$   1,25,800.00	22200
2019	$    1,25,800.00	15.00%	18870	$   1,06,930.00	41070

• Units of Production Method

A	Cost	$        1,48,000.00
B	Residual Value	$            16,000.00
C=A - B	Depreciable base	$        1,32,000.00
D	Units	400000
E	Depreciation per units	$0.33
Year	Book Value	Units	Depreciation expense [Units x $0.33]	Ending Book Value	Accumulated Depreciation
2018	$    1,48,000.00	48000	$     15,840.00	$   1,32,160.00	$        15,840.00
2019	$    1,32,160.00	43000	$     14,190.00	$   1,17,970.00	$        30,030.00