Question

On January 1, 2021, the Allegheny Corporation purchased equipment for $343,000. The estimated service life of the equipment is 10 years and the estimated residual value is $24,000. The equipment is expected to produce 296,000 units during its life.

Required:
Calculate depreciation for 2021 and 2022 using each of the following methods

1. Sum-of-the-years’-digits (Do not round intermediate calculations. Round final answers to the nearest whole dollar amount.)
2. One hundred fifty percent declining balance. (Round final answers to the nearest whole dollar amount.)

3. Assume instead the equipment was purchased on October 1, 2021. Calculate depreciation for 2021 and 2022 using each of the two methods. Partial-year depreciation is calculated based on the number of months the asset is in service. (Do not round intermediate answers and round your answers to the nearest whole dollar amount.)

Answer 1

Answer 1 ) Sum of the digits method

Year 2021

Sum of the digits method

Formula = Depreciation base X Remaining life

SYD

Purchase Price $ 343000

Residual value $ 24000

Amount of Depreciation $ 319000 to be charged in 10 years

First year the Depreciation would be

319000*10/55 = $ 58000

Year 2022

Second year the Depreciation would be

319000 * 9/55 = $ 52200

Answer 2 ) 150% declining balance method

Year 2021

Purchase Cost $ 343000

Residual value $ 24000

Amount to be depreciated $ 319000

Useful life 10 years

Yearly depreciation = 319000/10 = 31900

It is 10% as per Straight Line Method

Under 150% declining balance method , this rate is multiplied by 150% , i.e the rate of depreciation would be 15%

Under 150% declining balance method , residual value is not considered for calculating depreciation

For year 2021 , the depreciation would be 51450

For year 2022 , the depreciation would be 43733

Answer 3) Assuming the Equipment was purchased on 01.10.2021

A) Under Sum of the digits method

Year 2021 - The Depreciation will be 14500

If 10 is the rate for 12 months, for 3 months ( Oct - Nov - Dec ) would be 2.5

319000*2.5/55

Year 2022 - The depreciation will be 56550

Book value at the beginning of the year 2022 = 328500

B ) 150% declining balance method

Year 2021

For 3 months the depreciation would be @ 3.75 % ( for 3 months )

$ 12863

Year 2022

For full year the depreciation will be $ 49521

End of the Answer