Question

Problem 9-3A a-b Crane United purchased a machine on account on April 2, 2018, at an invoice price of $366,600. On April 4, it paid $1,980 for delivery of the machine. A one year. $3.940 insurance policy on the machine was purchased on April 5. On April 18, Crane paid $8,420 for installation and testing of the machine. The machine was ready for use on April 30. Crane estimates the machine's useful life will be five years or 6,171 units with a residual value of $72,200, Assume the machine produces the following numbers of units each year S3 uns in 20181,385 units in 2019; 1,366 units in 2020; 1,427 units in 20211 and 1,140 units in 2022. Crone has a December 31 year end. Determine the cost of the machine Cost of the machine

Answer 1

Answer

(a) Straight-Line Invoice cost Delivery charges Installation Insurance cost Cost of machine Salvage Value Depreciable amount Life in years Annual Depreciation 366600 1980 8420 Not capitalised $3,77,000 $72 200 $3,04,800 $60,960 Year Deprecation 2018 $45,720 9 months 2019 $60,960 12 months 2020 $60,960 12 months 2021 $60,960 12 months 2022 $60,960 12 months 2023 $15,240 3 months $3,04,800 Year Depreciable cost 2018 $3,77,000 2019 $3,77,000 2020 $3,77,000 2021 $3,77,000 2022 $3,77,000 2023 $3,77,000 Depreciation expense Acc Dep 45,720 60,960 60,960 60,960 60,960 15,240 Carrying Amount 45,720 $3,31,280 1,06,680 $2,70,320 1,67,640 $2,09,360 2,28,600 $1,48,400 2,89,560 $87,440 3,04,800 $72,200

Double declining method 200%-declining balance Straight-line depreciation rate =(100% divided by 5 years). 20.00% 150% of the straight-line rate is 40% This rate is applied to the book value of the asset at the beginning of each year. (Book value is cost minus accumulated depreciation.) Cost of Machinery Salvage Value Depreciable amount $ Depreciation 3,77,000 72,200 3,04,800 Accumulated Depreciation Book Value $ 3,77,000 1,50,800 $ 1,50,800 $ 2.26.200 90,480 $ 2,41,280 $ 1,35,720 54,288 $ 2,95,568 $ 81,432 9.232 $ 3.04,800 $ 72,200 $ 3,04,800 $ 72,200 $ $ (") depreciation stops when book value = residual value Date of Purchase 2 April 2018 2018 9 months Depreciation 2019 (3 months +9 months) 2020 (3 months 9 months) 2021 (3 months 9 months) 2022 (3 months 9 months) 2023 (3 months +9 months) $ $ $ $ 1,13,100 1,05,560 63,336 20,496 2.308 3,04,800 2018 S 2019 $ 2020 $ 2021 $ 2022 $ 2023 $ Opening Carrying Anount Depreciation expense 3,77,000 $ 1.50,800 2,26,200 $ 90,480 1.35.720 $ 54,288 81,432 $ 9,232 72,200 $ 72,200 $ - Acc Dep C arrying Amount $ 1.50,800 $ 2.26,200 $ 2,41,280 $ 1.35.720 $ 2.95,568 $ 81,432 $ 3,04,800 $ 72,200 $ 3,04,800 $ 72,200 $ 3,04,800 $ 72,200

(b) Unit of Production method Total estimated production in units Cost Salvage Value Depreciable amount 6,171 A 3,77,000 72,200 3,04,800 B Depreciation per unit (B/A) Acc Dep Depreciation Year Units produced expense 2018 853 42,132 2019 1,385 68,408 2020 1366 67,470 2021 1427 70,483 2022 1140 56,307 6,171 3,04,800 Carrying Amount 42,132 3,34,868 1,10,540 2,66,460 1,78,010 1,98,990 2,48,493 1,28,507 3,04,800 72,200