Question

Max purchased a labelling machine on the 1st of June 2017. The machine cost $200,000 which was paid for by a loan of $150,000 and cash of $50,000. The machine will be used for 8 years and it is expected that Max Corporation will receive $8,000 cash for the scrap. The machine is expected to produce labels at the rate of: Year ended March 2018 2019 2020 2021 2022 80,000 100,000 120,000 130,000 140,000 -6- 2023 2024 2025 2026 Total 150,000 140,000 140,000 20,000 1,020,000 Max Corporation is registered for GST and has a balance date of 31 March Required: Showing your workings for each question (a) 2018 Using straight line depreciation method calculate the depreciation for the year ended March (b) 2020 Using straight line depreciation method calculate the depreciation for the year ended March (c) What is the unit of use for the machine? (d) Using Unit of Use depreciation method, calculate the expected depreciation for the year ended March 2020

Answer 1

a. Using straight-line depreciation, depreciation expense for the year ended March 2018 = $ ( 200,000 - 8,000 ) / 8 x 10 / 12 = $ 20,000.

b. Using straight-line depreciation, depreciation expense for the year ended March 31, 2020 = $ ( 200,000 - 8,000 ) / 8 = $ 24,000.

c. Unit of use = 1,020,000 / $ ( 200,000 - 8,000 ) = 5.3125 units per dollar

d. Expected depreciation for the year ended March 31, 2020 = 120,000 units / 5.3125 = $ 22,588.24

e. Actual depreciation = 95,000 / 1,020,000 * $ 192,000 = $ 17,882.35

f. $ 17,882.35

g. Using diminishing value method, depreciation rate = 100 / 8 * 1.5 = 18.75 %

h.

Period Ended	Cost Price	Opening Value	Depreciation for the Year	Closing Balance
March 2018	$ 200,000	$ 200,000	$ 31,250	$ 168,750
March 2019	200,000	168,750	31,641	137,109
March 2020	200,000	137,109	25,708	111,401