Question

Cheetah Copy purchased a new copy machine. The new machine cost $130,000 including installation. The company estimates the equipment will have a residual value of $32,500. Cheetah Copy also estimates it will use the machine for four years or about 8,000 total hours. Actual use per year was as follows: Year Hours Used 1 2,000 2 2,000 3 2,000 4 3,200 1. Prepare a depreciation schedule for four years using the straight-line method. 2. Prepare a depreciation schedule for four years using the double-declining-balance method. . Prepare a depreciation schedule for four years using the activity-based method.

Answer 1

Preparation of Depreciation Schedule

Part 1 - Depreciation schedule as per Straight line Method

Year = 4 i.e. 25% depreciation per year

Year	Depreciation	Accumulated Depreciation	Book Value
1	$24375 ($97500*25%)	$24375	$73125
2	$24375 ($97500*25%)	$48750	$48750
3	$24375 ($97500*25%)	$73125	$24375
4	$24375 ($97500*25%)	$97500	$0

Part 2 - Depreciation schedule as per double declining method

Depreciation rate under straight line method = 25% as per 4 years

Depreciation under double declining method = 25%*2 = 50%

Particulars	Asset Value	Depreciation @ 50%
Year 1	$130000	$65000
Year 2	$65000	$32500
Year 3	$32500	$0 (since asset is fully depreciated upto residual value of $97500)
Year 4	$32500	$0
Total		$97500

Part 3 - Depreciation Schedule as per Activity based method

Depreciable amount = ($130000 - $32500) = $97500

Depreciation = Depreciable amount*(Hours used in current year/Total Hours)

Particulars	Amount
Depreciation in year 1($97500*2000/8000)	$24375
Depreciation in year 2($97500*2000/8000)	$24375
Depreciation in year 3 ($97500*2000/8000)	$24375
Depreciation in year 4 ($97500 - $24375 - $24375 - $24375)	$24375
Total Depreciation charged	$97500