Question

Problem 9-4A a-b (Part Level Submission) Blossom Company purchased equipment on March 27, 2018, at a cost of $272,000. Management is contemplating the merits of using the diminishing-balance or units-of-production method of depreciation instead of the straight-line method, which it currently uses for other equipment. The new equipment has an estimated residual value of $8,000 and an estimated useful life of either four years or 80,000 units. Demand for the products produced by the equipment is sporadic so the equipment will be used more in some years than in others. Assume the equipment produces the following number of units each year: 14,200 units in 2018; 20,400 units in 2019; 20,400 units in 2020; 20,000 units in 2021; and 5,000 units in 2022. Blossom has a December year end.

Answer 1

Double diminishing balance method:-

Depreciation rate = (1/4) x 2 = 50%

Year	Opening Carrying Amount	Depreciation expense	Accumulated depreciation	Carrying Amount
				272,000
2018	272,000	102,000	102,000	170,000
2019	170,000	85,000	187,000	85,000
2020	85,000	42,500	229,500	42,500
2021	42,500	21,250	250,750	21,250
2022	21,250	13,250	264,000	8,000

2018 depreciation = 272,000 x 50% x 9/12 = $102,000

2019 depreciation = 170,000 x 50% = $85,000

2020 depreciation = 85,000 x 50% = 42,500

2021 depreciation = 42,500 x 50% = 21,250

2022 depreciation = Higher of

21,250 x 50% x 3/12 = $2,656.25 or 21,250 - 8,000 = $13,250

i.e. 13,250