Question

-10 8-3 depreciation method in conformity Computing Depreciation under Alternative Methods Strong Metals Inc, purchased a new stamping machine at the beginning of the year at a cost of Sos The estimated residual value was $50,000. Assume that the estimated useful life was five years estimated productive life of the machine was 300,000 units. Actual annual production was as follow Year Units 70,000 67,000 50,000 73,000 40,000 Required: 1. Complete a separate depreciation schedule for each of the alternative methods. Round your answers to the nearest dollar. a. Straight-line. b. Units-of-production. c. Double-declining-balance. Method: Net Depreciation Expense Accumulated Depreciation Computation Book Value Year At acquisition etc. 2. Assuming that the machine was used directly in the production of one of the produ company manufactures and sells, what factors might management consider in selecting depreciation method in conformity with the expense principle? e products that the Acting a preferable A naal . . .

Answer 1

ANSWER

Prepare schedule under straight-line method as follows: - A Staright line method Acquisition cost $950,000 Residual value $50,000 Base value $900.000 Useful life Rate of depreciation 20.00% Yearly depreciation $180,000 Depreciation Schedule 9 Asset Year Book value Depreciation Accumulated January 01 Expense depreciation $950,000 $180,000 $180,000 $770.000 $180,000 $360,000 $590,000 $180,000 $540,000 $410.000 $180.000 $720.000 15 5 $230,000 $180.000 $900.000 Book Value December 31 $770.000 $590,000 $410,000 $230,000 $50,000

Following formula used to obtain above values: - A B C Staright line method Acquisition cost 950000 Residual value 50000 Base value =C2-C3 Useful life 5 Rate of depreciation =1/C5 Yearly depreciation =C6*C4 Depreciation Schedule 9 Asset Year Book Depreciatio Accumulated valuen Expense depreciation =C$7 =C11 =E11 =CS7 =D11+C12 =E12 =C$7 =D12+C13 =E13 =C$7 =D13+C14 15 5 =E14 =C$7 =D14+C15 =C2 Book Value December =B11-011 =B12-C12 =B13-C13 =B14-C14 =B15-C15 +

Prepare schedule under the unit of production method as follows:- А в Production method Acquisition cost $950,000 Residual value $50,000 Base value $900,000 Units of production 300000 Depreciation per unit $3.00 Useful life Depreciation Schedule 9 Asset Year Book value January Yearly Depreciation production Expense Accumulated depreciation Book Value December 31 01 $950,000 $740,000 $539,000 $389,000 $170,000 70,000 67,000 50,000 73,000 40,000 $210,000 $201.000 $150,000 $219,000 $120,000 $210,000 $411,000 $561,000 $780,000 $900,000 $740,000 $539.000 $389,000 $170,000 $50,000

Following formula used to obtain above values: - BC Production method Acquisition cost 950000 Residual value 50000 Base value =C2-C3 Units of production 300000 Depreciation per unit =C4/C5 Useful life Depreciation Schedule 9 Asset Year Book value Yearly Depreciation Accumulated January 01 production Expense depreciation 10 11 1 =C2 =F11 =F12 =F13 =F14 13 3 70000 67000 50000 73000 40000 =C11*CS6 =C12*CS6 =C13*CS6 =C14*CS6 =C15*CS6 Book Value December 31 =B11-E11 =B12-D12 =B13-D13 =B14-D14 =B15-D15 =D11 =E11+D12 =E12+D13 =E13+D14 =E14+D15 14 4 15 5

C. Prepare schedule under the unit of the double-declining method as follows: A B Double Declining Method Acquisition cost $950,000 Residual value $50,000 Base value $900,000 Useful life Rate of depreciation 40.00% Depreciation Schedule 8 Asset Year Book value Depreciation Accumulated January 01 Expense depreciation Book Value December 31 WN $950,000 $380.000 $380,000 $570,000 $570,000 $228.000 $608,000 $342.000 $342.000 $136.800 $744.800 $205,200 $205,200 $82,080 $826,880 $123,120 $123,120 $73.120 $900,000 $50,000 15 * In the last year depreciation provided is $73120. as it can not increase the resuidual value

Following formula used to obtain above values: - A B Double Declining Method Acquisition cost 950000 Residual value 50000 Base value =C2-C3 Useful life Rate of depreciation =2/C5 Depreciation Schedule 8 Asset Year Book Depreciation Accumulated Book Value value Expense depreciation December 31 Januar 10 1 =C2 =B10*C$6 =C10 =B10-D10 =E10 =B11*C$6 =D10+C11 =B11-C11 =E11 =B12*CS6 =D11+C12 =B12-C12 13 4 =E12 =B13*C$6 =D12+C13 =B13-C13 =E13 =B14*C$6+23872 =D13+C14 =B14-C14 15 In the last year depreciation provided is $73120, as it can not increase the resuidual valu 123 14 *

Following factors should be considered for selecting the depreciation method: - (a) Use of the asset: Nature of the asset should be understood properly (b) Tax benefit: The method which provides most tax benefits should be preferred. (C) Prevailing law. If the law does not permit then, one should not follow that method.

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