Question

M8-13. Computing Depreciation Under Alternative MethodsEquipment costing $130,000 is expected to have a residual value of $10,000 at the end of its six-year useful life. The equipment is metered so that the number of units processed is counted. The equipment is designed to process 1,000,000 units in its lifetime. In 2019 and 2020, the equipment processed 180,000 units and 140,000 units respectively. Calculate the depreciation expense for 2019 and 2020 using each of the following methods:a. Straight-lineb. Double-declining-balancec. Units of productio

Answer 1

Straight line Method
Cost of Equipment	$ 130,000
Less: Salvage value	$ (10,000)
Depreciable value	$ 120,000
Life of Equipment	6 Years
Depreciation per year ($120,000/6)	$    20,000
Depreciation for 2019	$    20,000
Depreciation for 2020	$    20,000

Depreciation under DDB Method
Year - a	Net Book value, beginning of year - b	Double declained depreciation - c = b/Life of assets*2	Net book value, End of the year - d = b-c
2019	$ 130,000	$              43,333.33	$                   86,666.67
2020	$    86,667	$              28,888.89	$                   57,777.78

Activity Based Method Units of output
Cost of Equipment	$   130,000
Less: Salvage value	$   (10,000)
Depreciable value	$   120,000
Total expected production	1,000,000
Depreciation per unit ($120,000/1,000,000)	$          0.12
Depreciation for 2019 (180,000*$0.12)	$     21,600
Depreciation for 2020 (140,000*$0.12)	$     16,800

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