Question

Dordine Company acquired equipment on March 1, 2020, at a cash cost of $1,000,000. Transportation charges amounted to $12,000, installation cost was $40,000, testing costs were $30,000, and the payment of a fine for not getting the proper permit for moving the equipment was $1.000. The equipment was estimated to have a useful life of 12 years and a salvage value of $60,000 at the end of its life. It was further estimated that the equipment would be used in the production of $364,000 units of product during its life. During the 2020 year, 40,000 units of product were produced. Required: Compute the depreciation to the nearest dollar for the year ended December 31, 2020, using the following methods: • Straight-line method • Units-of-production method . Sum-of-the-years-digits method • Double-declining balance method

Answer 1

Depreciation on :

1) Straight line method:

Total cost of equipment = purchase cost + transport + installation + testing

Total cost of equipment = 1000000+12000+40000+30000 = 1082000

Depreciation for 10 months only.

Depreciation = [(total cost - salvage)/Number of years]* 10/12

Depreciation = [(1082000-60000)/12]*10/12 = 70972.22

2) Units of production method:

Depreciation per unit = (total cost - salvage)/Life production in units

Depreciation per unit = (1082000-60000)/364000 = 2.807692 per unit

Year's depreciation = 40000 * 2.807692 = 112307.70

3) Sum of the years digits method:

total sum of years = 12 * (12+1)/2 =78

Depreciation = (total cost - salvage)*(12/78)* (10/12)

Depreciation = (1082000-60000)*(12/78)* (10/12)= 131025.60

4) Double declining balance method:

depreciation rate = 100 * 2/12 = 16.67%

Depreciation = total cost * double depreciation rate * 10/12

Depreciation = 1082000 * 16.67% * 10/12 = 150307.80