Question

Q2/please I posted before 2 days but the answer are wrong Please answer question

Pharoah Limited purchased a machine on account on April 2, 2018, at an invoice price of $356,620. On April 4, it paid $2,130 for delivery of the machine. A one-year, $3,970 insurance policy on the machine was purchased on April 5. On April 18, Pharoah paid $7,590 for installation and testing of the machine. The machine was ready for use on April 30.

Pharoah estimates the machine’s useful life will be five years or 6,212 units with a residual value of $73,690. Assume the machine produces the following numbers of units each year: 896 units in 2018; 1,400 units in 2019; 1,405 units in 2020; 1,396 units in 2021; and 1,115 units in 2022. Pharoah has a December 31 year end.

A/ Determine the cost of the machine.

Cost of the machine

$

B/

Calculate the annual depreciation and total depreciation over the asset’s life using: (Round the depreciation cost per unit to the nearest cent. Round answers to 0 decimal places, e.g. 5,275.)

(1) Straight-line method

Year		Depreciable Cost		Depreciation Expense		Accumulated Depreciation		Carrying Amount
2018		$		$		$		$
2019
2020
2021
2022
2023

(2) Double-diminishing-balance method

Year		Opening Carrying Amount		Depreciation Expense		Accumulated Depreciation		Carrying Amount
2018		$		$		$		$
2019
2020
2021
2022
2023

(3) Units-of-production method

Year		Units-of-production		Depreciation Expense		Accumulated Depreciation		Carrying Amount
2018				$		$		$
2019
2020
2021
2022

(4) Which method causes net income to be lower in the early years of the asset’s life?

Straight-Line MethodDouble-Diminishing-Balance MethodUnits-of-Production MethodStraight-Line MethodDouble-Diminishing-Balance MethodUnits-of-Production Method

Answer 1

A) Cost of Machine is calculated as follows:- (Amounts in $)

Purchase Cost of machine (Invoice price)	356,620
Delivery charges for machine	2,130
Installation and testing charges	7,590
Total cost of machine	366,340

Therefore total cost of machine is $366,340.

(Insurance expense will not capitalized to the cost of machine).

B) 1) Straight Line Method:-

Depreciation per year = (Cost - Residual Value)/Useful Life in yrs

= ($366,340 - $73,690)/5 yrs = $58,530 per year

Schedule showing annual depreciation (Amounts in $)

Year	Depreciable Cost	Depreciation Expense	Accumulated Depreciation	Carrying Amount
2018	292,650 (366,340-73,690)	39,020 (58,530*8/12)	39,020	327,320 (366,340-39,020)
2019	292,650 (366,340-73,690)	58,530	97,550	268,790 (327,320-58,530)
2020	292,650 (366,340-73,690)	58,530	156,080	210,260 (268,790-58,530)
2021	292,650 (366,340-73,690)	58,530	214,610	151,730 (210,260-58,530)
2022	292,650 (366,340-73,690)	58,530	273,140	93,200 (151,730-58,530)
2023	292,650 (366,340-73,690)	19,510 (58,530*4/12)	292,650	73,690 (93,200-19,510)

2) Double-Declining Balance Method:-

Depreciation rate under double declining balance = (1/Useful life in yrs)*2*100

= (1/5 yrs)*2*100 = 40%

Schedule showing annual depreciation (Amounts in $)

Year	Opening Carrying Amount (A)	Depreciation Expense (B = A*40%)	Accumulated Depreciation	Carrying Amount (A-B)
2018	366,340	97,691 (366,340*40%*8/12)	97,691	268,649
2019	268,649	107,460	205,151	161,189
2020	161,189	64,476	269,627	96,713
2021	96,713	38,685	308,312	58,028
2022	58,028	23,211	331,523	34,817
2023	34,817	4,642 (34,817*40%*4/12)	336,165	30,175

3) Units of Production Method:-

Depreciation expense per unit = (Cost - Residual Value)/Useful life in units

= ($366,340 - $73,690)/6,212 units = $47.11 per unit

Schedule showing annual depreciation (Amounts in $)

Year	Units-of-production (A)	Depreciation Expense (A*47.11)	Accumulated Depreciation (B)	Carrying Amount (366,340-B)
2018	896 units	42,211	42,211	324,129
2019	1,400 units	65,954	108,165	258,175
2020	1,405 units	66,190	174,355	191,985
2021	1,396 units	65,766	240,121	126,219
2022	1,115 units	52,528	292,649	73,691

4) The net income will be lower under that method in which depreciation cost is higher (i.e. double declining balance method). Therefore Double-Diminishing-Balance Method causes net income to be lower in the early years of the asset’s life.