Question

Norton Corporation has purchased a cement mixed on 1st January 20x1 for 14,500. The mixer is expected to have a useful life of 5 years and residual value of 1,000. The company engineers estimate the mixer will have a useful life of 7,500 hours. It was used 1,500 hours in 20X1, 2,650 hours in 20X2, 2,250 hours in 20X3, 750 hours in 20X4 and 375 hours in 20X5. Company’s year ends in 31st December.

1). Compute depreciation expense and carrying value for 20x1 – 20X5 using the following methods: (a) straight-line, (b) production, (c) double-declining-balance

2). Prepare the adjusting entries to record depreciation for year 20X1 for each method

3). Show Balance sheet presentation of cement mixer on 31st December 20x1 and 20X2

4). What conclusions can you draw from patterns of depreciation?

Answer 1

1. a) Straight Line method of Depreciation
	20X1	20X2	20X3	20X4	20X5
Mixer Value (histrorical Cost)	14,500.00	14,500.00	14,500.00	14,500.00	14,500.00
Accumulated Depreciation	2,700.00	5,400.00	8,100.00	10,800.00	13,500.00
Carrying Value	11,800.00	9,100.00	6,400.00	3,700.00	1,000.00
b) Production method of Depreciation
	20X1	20X2	20X3	20X4	20X5
Mixer Value (histrorical Cost)	14,500.00	14,500.00	14,500.00	14,500.00	14,500.00
Accumulated Depreciation	2,691.03	7,445.18	11,481.73	12,827.24	13,500.00
Carrying Value	11,808.97	7,054.82	3,018.27	1,672.76	1,000.00
c) Double Declining Balance Method
	20X1	20X2	20X3	20X4	20X5
Mixer Value (histrorical Cost)	14,500.00	14,500.00	14,500.00	14,500.00	14,500.00
Accumulated Depreciation	5,800.00	9,280.00	11,368.00	12,620.80	13,372.48
Carrying Value	8,700.00	5,220.00	3,132.00	1,879.20	1,127.52
	3,480.00	2,088.00	1,252.80	751.68
2. Depreciation for 20X1
Particulars	Debit	Credit
Straight Line Method
Depreciation Expense	2,700.00
To Accumulated Depreciation		2,700.00
Production Method
Depreciation Expense	2,691.03
To Accumulated Depreciation		2,691.03
Double Declining Balance Method
Depreciation Expense	5,800.00
To Accumulated Depreciation		5,800.00
3. Balance Sheet Presentation
Schedule of Item appearing on the Balance Sheet on 20X1
Fixed Assets	Straight Line method of Depreciation
Property Plant and equipment	20X1	20X2
Mixer	14,500.00	14,500.00
Less: Accumulated Depreciation	2,700.00	5,400.00
	11,800.00	9,100.00
	Production Method
	20X1	20X2
Mixer	14,500.00	14,500.00
Less: Accumulated Depreciation	2,691.03	7,445.18
	11,808.97	7,054.82
	Double Declining Balance Method
	20X1	20X2
Mixer	14,500.00	14,500.00
Less: Accumulated Depreciation	5,800.00	9,280.00
	8,700.00	5,220.00
4.
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