Question

In: Accounting

On January 1 of the current​ year, Reynoso Manufacturing Company purchased a metal cutting and polishing...

On January 1 of the current​ year, Reynoso Manufacturing Company purchased a metal cutting and polishing machine at a cost of $3,880,000. The installation and delivery costs amounted to $220,000. The firm expects the machine to be productive for a total of five years and expects a residual value of $420,000 at the end of the​asset's useful life.

Requirements:

Prepare the depreciation schedules for the machine assuming that the following methods were used​ (each case is​ independent):

1.

​Straight-line method

2.

​Double-declining balance method​ (DDB) (Reduce the depreciation expense in the last year to the necessary amount to arrive at an ending book value equal to the scrap​ value.)

Solutions

Expert Solution

CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD FOR MACHINE
Purchase Cost of Machine                    38,80,000
Add: Installation and Delivery Cost                      2,20,000
Depreciated Value                    41,00,000
Less: Salvage Value                      4,20,000
Net Value for Depreciation                    36,80,000
Usefule life of the Assets 5 years
Depreciation per year = Value for Depreciation / 5 years =                      7,36,000
Total Depreciation for the per year                      7,36,000
CALCULATION OF THE DEPRECIATION AS PER DOUBLE DECLINE METHOD FOR MACHINE C
Purchase Cost of Machine inluding installation                    41,00,000
Useful Life = 5 years
Depreciation per year =                      8,20,000
(Purchase price / Useful life)
Rate of Depreciation =
Rate of Depreciation = (1 / 5 Years ) 0.20 or 20.00%
(Depreication / Purchase price )
Double decline deprection rate = 20% * 2 = 40.0%
Depreciation for the year 1 =
Purchase Value (Including installantion and delivery Cost) =                    41,00,000
Rate of Depreciation = 40.00% =                    16,40,000
Closing Value of year 1                    24,60,000
Opening Balance of the year 2                    24,60,000
Depreciation @ 40%                      9,84,000
Closing Value of year 2                    14,76,000
Opening Balance of the year 3                    14,76,000
Depreciation @ 40%                      5,90,400
Closing Value of year 3                      8,85,600
Opening Balance of the year 4                      8,85,600
Depreciation @ 40%                      3,54,240
Closing Value of year 4                      5,31,360
Opening Balance of the year 5                      5,31,360
Depreciation @ 40% ($ 531,360 - $ 420,000)                      1,11,360
Closing Value of year 5                      4,20,000
DEPRECIATION SCHEDULE AS PER STRAIGHT LINE METHOD
Years Purchase Cost (Including installation and delivery Cost) Depreciation Accumulated Depreciation Closing Value
Year 1                    41,00,000               7,36,000              7,36,000                     33,64,000
Year 2                                   -                 7,36,000            14,72,000                     26,28,000
Year 3               7,36,000            22,08,000                     18,92,000
Year 4               7,36,000            29,44,000                     11,56,000
Year 5               7,36,000            36,80,000                       4,20,000
DEPRECIATION SCHEDULE AS PER REDUCING BALANCE METHOD
Years Purchase Cost (Including installation and delivery Cost) Depreciation Accumulated Depreciation Closing Value
Year 1                    41,00,000            16,40,000            16,40,000                     24,60,000
Year 2                                   -                 9,84,000            26,24,000                     14,76,000
Year 3               5,90,400            32,14,400                       8,85,600
Year 4               3,54,240            35,68,640                       5,31,360
Year 5               1,11,360            36,80,000                       4,20,000

ekkarill92 answered 2 years ago
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