Question

In: Accounting

Glans Company purchased equipment on account on April 6, 2012, at an invoice price of $442,000....

Glans Company purchased equipment on account on April 6, 2012, at an invoice price of
$442,000. On April 7, 2012, it paid $4,000 for the delivery of the equipment. A one-year, $3,000
insurance policy on the equipment was purchased on April 9, 2012. On April 22, 2012, Glans
paid $6,000 for the installation and testing of the equipment. The equipment was ready for
use on May 1, 2012.
Glans estimates that the equipment’s useful life will be four years, with a residual value of
$20,000. It also estimates that, in terms of activity, the equipment’s useful life will be 150,000
units. Glans has an April 30 fiscal year-end. Assume the actual usage is as follows:

# of units Year ended April 30
22,600 2013
45,600 2014
49,700 2015
32,200 2016

a) Determine the cost of the equipment

b) Prepare the depreciation schedules for the life of the asset using the straight-line
depreciation method

c) Prepare the depreciation schedules for the life of the asset using the diminishing
balance at double the straight-line rate depreciation method

d) Prepare the depreciation schedules for the life of the asset using the units-of-production
depreciation method

Expert Solution

Requirement a:

Cost of the equipment = $ 442,000+$ 4,000+$ 3,000+$ 6,000 = $ 445,000

Requirement b:

Date	Asset cost	Depreciation for the year
Date	Asset cost	Depreciable cost		Useful life		Depreciation expense	Accumulated depreciation	Book value
06-04-2012	$ 455,000							$ 455,000
30-04-2013		$ 435,000	/	4	=	$ 108,750	$ 108,750	$ 346,250
30-04-2014		$ 435,000	/	4	=	$ 108,750	$ 217,500	$ 237,500
30-04-2015		$ 435,000	/	4	=	$ 108,750	$ 326,250	$ 128,750
30-04-2016		$ 435,000	/	4	=	$ 108,750	$ 435,000	$ 20,000

Requirement c:

Date	Asset cost	Depreciation for the year
Date	Asset cost	Book Value		DDB rate		Depreciation expense	Accumulated depreciation	Book value
06-04-2012	$ 455,000							$ 455,000
30-04-2013		$ 455,000	x	50.00%	=	$ 227,500	$ 227,500	$ 227,500
30-04-2014		$ 227,500	x	50.00%	=	$ 113,750	$ 341,250	$ 113,750
30-04-2015		$ 113,750	x	50.00%	=	$ 56,875	$ 398,125	$ 56,875
30-04-2016		$ 56,875	x	50.00%	=	$ 36,875	$ 435,000	$ 20,000

Note:

DDB rate = 1/4*2 = 50%

Requirement d:

Date	Asset cost	Depreciation for the year
Date	Asset cost	Depreciation per unit		No.of units		Depreciation expense	Accumulated depreciation	Book value
06-04-2012	$ 455,000							$ 455,000
30-04-2013		$ 2.90	x	22600	=	$ 65,540	$ 65,540	$ 389,460
30-04-2014		$ 2.90	x	45600	=	$ 132,240	$ 197,780	$ 257,220
30-04-2015		$ 2.90	x	49700	=	$ 144,130	$ 341,910	$ 113,090
30-04-2016		$ 2.90	x	32200	=	$ 93,090	$ 435,000	$ 20,000

Note:

Depreciation per unit = (455000-20000)/150000 = $ 2.90

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