Question

On January 1, a machine costing $260,000 with a 4-year life and an estimated $5,000 salvage value was purchased. It was also estimated that the machine would produce 500,000 units during its life. The actual units produced during its FOUR years of operation were 110,000, 150,000; 140,000, 100,000. Determine the amount of depreciation expense for each of the FOUR years under each of the following assumptions:

1. The company uses the straight-line method of depreciation.

2. The company uses the units-of-production method of depreciation

3. The company uses the double-declining-balance method of depreciation.

Answer 1

Ans 1	Straight line method
			Computation of depreciable value
			Total cost		260000
		Less	Salvage value		5000
			Depreciable value		255000
			usefull life =		4
			Annual depreciation =		63750
	Year	Depreciation exp
	1	63750
	2	63750
	3	63750
	4	63750
Ans 2	Unit of production method
	Computation of depreciation expenses per unit
	Depreciation per unit = (Total cost - salvage value) / total unit
	Total unit =				500000
	Total cost	Salvage value	Total unit		Depreciation unit
	260000	5000	500000		0.510
	Year	Unit	Depreciation expeses
	1	110000	56100
	2	150000	76500
	3	140000	71400
	4	100000	51000
Ans 3)	Double declining method
	Depreciation rate = 2/4			50%
	Date	rate	Depreciation expeses	Accumulated dep	ending value
					260000
	1	50%	130000	130,000	130000
	2	50%	65000	195,000	65000
	3	50%	32500	227,500	32500
	4	50%	16250	243,750	16250