Question

Question 5: Forty-Niner Co purchased a computer for $325,000 on January 2, 2017. The company expects the computer to last for 8 years or 15,000 hours of operation, with an estimated residual value of $25,000. During 2017 the computer was operated for 2,000 hours, while in 2018 it was operated for 2,600 hours . Required: Calculate the depreciation expense for the computer for 2017 and 2018 using the following depreciation methods: a) Straight-line. b) Declining-balance at twice the straight-line rate. c) Units-of-production.

Answer 1

Ans. a	Straight line depreciation = (Cost of asset - Residual value) / Useful life in years
		($325,000 - $25,000) / 8
		$300,000 / 8
		$37,500
	*In Straight line method the depreciation is equal in each year.
	Year	Depreciation
	2017	$37,500
	2018	$37,500
Ans. B	Double declining balance method:
	Double declining balance depreciation rate = 2 * 1 / life of assets
		2 * 1 / 8
		0.25
	*Depreciation = Remaining value at the beginning of the year * Double declining balance depreciation rate
	Year	Remaining value at the beginning (a)	Depreciation (b = a*0.25)	Ending book value
	2017	$325,000	$81,250.00	$243,750.00
	2018	$243,750	$60,937.50	$182,812.50
	*Ending book value for 2017 is the remaining book value at the beginning for 2018.
Ans. C	Units of production depreciation =
	Depreciation per unit =   (Cost of asset - Residual value) / Expected activity
		($325,000 - $25,000) / 15,000
		$300,000 / 15,000
		$20	per unit
	Depreciation = Actual activity * Depreciation per unit
Year	Depreciation per unit (a)	Actual hours (b)	Total Depreciation (a * b)
2017	$20.00	2000	$40,000
2018	$20.00	2600	$52,000