Question

Problem #2: Depreciation Methods (SHOW YOUR WORK)

Numo Company purchased a new machine on October 1, 2020, at a cost of $145,000. The company estimated that the machine will have a salvage value of $25,000.The machine is expected to be used for 20,000 working hours during its 5-year life.

Instructions Compute the depreciation expense under the following methods for the year indicated.

(a) Straight-line for 2020.

(b) Units-of-activity for 2020, assuming machine usage was 3,400 hours.

(c) Declining-balance using double the straight-line rate for 2020 and 2021.

Answer 1

(a)

	Straight Line Depreciation for 2020
	(Cost - Salvage Value)	/	Useful Life	=	Annual Depreciation
	(145,000 - 25,000)	/	5	=	$             24,000.00
Year	Annual Depreciation	x	Fraction Year	=	Depreciation Expense
2020	24,000.00	x	3/12	=	$               6,000.00

(b)

Formula for Units of Production Depreciation
Depreciation = (Cost - Salvage Value) / Units Produced
= (145,000-25,000) / 20,000
= $ 6 per unit depreciation rate
Calculation of 2020 Depreciation Expense
Depreciation per unit Rate	$         6.00
Units produced in 2020	3,400.00
Depreciation in 2021	$ 20,400.00

(c)

Double Declining Balance Depreciation
	Depreciation for the Period
Annual Period	Beginning of	Depreciation	Fraction	Depreciation
	Period Book	Rate (40%)	of Year	Expense
	Value
2020	$ 145,000.00	40%	3/12	14,500.00
2021	$ 130,500.00	40%	12/12	52,200.00
Explanation
Depreciation Rate = (100% / 5 years) × 2 = 40% per year
Book Value = Beginning period book value - Depreciation expense