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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 1 year ago
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