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

ekkarill92 answered 10 months ago

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