Question
In: Accounting
Calculation of depreciation; three methods) On January 1, 2016, SugarBear Company acquired equipment costing $150,000, which...
Calculation of depreciation; three methods)
On January 1, 2016, SugarBear Company acquired equipment costing $150,000, which will be depreciated on the assumption that the equipment will be useful for five years and have a residual value of $12,000. The esti- mated output from this equipment is as follows: 2016—15,000 units; 2017—24,000 units; 2018—30,000 units; 2019—28,000 units; 2020—18,000 units. The company is now considering possible methods of depreciation for this asset.
Required:
a. Calculate what the depreciation expense would be for each year of the asset’s life, if the company chooses:
i. The straight-line method
ii. The units-of-production method
iii. The double-diminishing-balance method
b. Briefly discuss the criteria that a company should consider when selecting a depreciation method.
Solutions
Expert Solution
| Given Information: | |||||||
| Cost | 150000 | Year | Units | ||||
| Useful Life | 5 | 2016 | 15000 | ||||
| Residual Value | 12000 | 2017 | 24000 | ||||
| 2018 | 30000 | ||||||
| 2019 | 28000 | 15000 | |||||
| 2020 | 18000 | ||||||
| Total | 115000 | ||||||
| A | SLM: | ||||||
| Cost | 150000 | ||||||
| Residual Value | 12000 | ||||||
| Depreciable Value | 138000 | ||||||
| Useful Life | 5 | ||||||
| Depreciation PA | 27600 | ||||||
| Year | 2016 | 2017 | 2018 | 2019 | 2020 | Total | |
| Depreciation PA | 27600 | 27600 | 27600 | 27600 | 27600 | 138000 | |
| B | Units of Production Method: | ||||||
| Cost | 150000 | ||||||
| Residual Value | 12000 | ||||||
| Depreciable Value | 138000 | ||||||
| Total Units | 115000 | ||||||
| Dep Per Unit | 1.20 | ||||||
| Year | 2016 | 2017 | 2018 | 2019 | 2020 | Total | |
| Depreciation PA | 18000 | 28800 | 36000 | 33600 | 21600 | 138000 | |
| (Units* Dep PU) | |||||||
| C | Useful Life | 5 | |||||
| Rate of Deprecition | 1/Life | Cost | 150000 | ||||
| Rate of Deprecition | 20% | Residual Value | 12000 | ||||
| Double Rate | 40% | Depreciable Value | 138000 | ||||
| (Opening Bal*40%) | |||||||
| Year | Opening Bal | Depreciation | Closing Bal | Accum Dep | |||
| 2016 | 150000 | 60000 | 90000 | 60000 | |||
| 2017 | 90000 | 36000 | 54000 | 96000 | |||
| 2018 | 54000 | 21600 | 32400 | 117600 | |||
| 2019 | 32400 | 12960 | 19440 | 130560 | |||
| 2020* | 19440 | 7440 | 12000 | 138000 | |||
| Total | 138000 | ||||||
| * Dep Limited to Dep Value | |||||||
| Criteria to Choose Depreciation Method: | |||||||
| 1 | Consider Whether you will use an asset an equal amount each year | ||||||
| 2 | Determine if an asset generates a measureable quality of output each period In Units | ||||||
| 3 | Decide whether the asset will be used more in the beg years | ||||||
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On January 1, 2016, SugarBear Company acquired equipment costing
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equipment will be useful for five years and have a residual value
of $12,000. The estimated output from this equipment is as follows:
2016—15,000 units; 2017—24,000 units; 2018—30,000 units;
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