SOLUTION 1 (A) | ||||||
CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD FOR MACHINE | ||||||
Purchase Cost of Machine | 22,000 | |||||
Less: Salvage Value | 2,000 | |||||
Net Value for Depreciation | 20,000 | |||||
Usefule life of the Assets | 5 years | |||||
Depreciation per year = Value for Depreciation / 5 years = | 4,000 | |||||
Total Depreciation for the per year | 4,000 | |||||
DEPRECIATION SCHEDULE - STRAIGHT LINE METHOD | ||||||
Income Statement | Balance Sheet | |||||
Year | Depreciation Expenses | Cost | Accumulation Depreciation | Book Value | ||
At Acquisition | $ 22,000 | $ 22,000 | ||||
Depreciation for Year 1 | $ 4,000 | $ 4,000 | $ 18,000 | |||
Depreciation for Year 2 | $ 4,000 | $ 8,000 | $ 14,000 | |||
Depreciation for Year 3 | $ 4,000 | $ 12,000 | $ 10,000 | |||
Depreciation for Year 4 | $ 4,000 | $ 16,000 | $ 6,000 | |||
Depreciation for Year 5 | $ 4,000 | $ 20,000 | $ 2,000 | |||
SOLUTION 1 (B) | ||||||
CALCULATION OF THE DEPRECIATION AS PER UOP METHOD | ||||||
Purchase Cost of Equipment = | $ 22,000 | |||||
Less: Salvage Value = | $ 2,000 | |||||
Net Value for Depreciation = | $ 20,000 | |||||
Expected to Produce Units= | $ 10,000 | Units | ||||
Depreciation per unit = | $ 2 | Per Unit Cost | ||||
($ 20,000 / 10,000 Units) | ||||||
DEPRECIATION SCHEDULE - UNIT OF PRODUCTION METHOD | ||||||
Income Statement | Balance Sheet | |||||
Year | Depreciation Expenses | Cost | Accumulation Depreciation | Book Value | ||
At Acquisition | $ 22,000 | $ 22,000 | ||||
Depreciation for Year 1 (2000 Units X $ 2) | $ 4,000 | $ 4,000 | $ 18,000 | |||
Depreciation for Year 2 (3000 Units X $ 2) | $ 6,000 | $ 10,000 | $ 12,000 | |||
Depreciation for Year 3 (2000 Units X $ 2) | $ 4,000 | $ 14,000 | $ 8,000 | |||
Depreciation for Year 4 (2000 Units X $ 2) | $ 4,000 | $ 18,000 | $ 4,000 | |||
Depreciation for Year 5 (1000 Units X $ 2) | $ 2,000 | $ 20,000 | $ 2,000 | |||
SOLUTION 1 (C) | ||||||
CALCULATION OF THE DEPRECIATION AS PER DOUBLE DECLINE METHOD FOR MACHINE C | ||||||
Rate of Depreciation = | ||||||
Rate of Depreciation = (1 / 5 Years ) | 0.20 or 20.00% | |||||
(Depreication / Purchase price ) | ||||||
Double decline deprection rate = 20% * 2 = | 40.0% | |||||
Depreciation for the year 1 = | ||||||
Purchase Value (Including installantion and delivery Cost) = | 22,000 | |||||
Depreciation for the year 1 @ 40.00% = | 8,800 | |||||
Closing Value of year 1 | 13,200 | |||||
Opening Balance of the year 2 | 13,200 | |||||
Depreciation for the year 2 @ 40.00% = | 5,280 | |||||
Closing Value of year 2 | 7,920 | |||||
Opening Balance of the year 3 | 7,920 | |||||
Depreciation for the year 3 @ 40.00% = | 3,168 | |||||
Closing Value of year 3 | 4,752 | |||||
Opening Balance of the year 4 | 4,752 | |||||
Depreciation @ 40% | 1,901 | |||||
Closing Value of year 4 | 2,851 | |||||
Opening Balance of the year 5 | 2,851 | |||||
Depreciation @ 40% | 1,140 | |||||
Closing Value of year 5 | 1,711 | |||||
DEPRECIATION SCHEDULE - DOUBLE DECLINE BALANCE | ||||||
Income Statement | Balance Sheet | |||||
Year | Depreciation Expenses | Cost | Accumulation Depreciation | Book Value | ||
At Acquisition | $ 22,000 | $ 22,000 | ||||
Depreciation for Year 1 (2000 Units X $ 2) | $ 8,800 | $ 8,800 | $ 13,200 | |||
Depreciation for Year 2 (3000 Units X $ 2) | $ 5,280 | $ 14,080 | $ 7,920 | |||
Depreciation for Year 3 (2000 Units X $ 2) | $ 3,168 | $ 17,248 | $ 4,752 | |||
Depreciation for Year 4 (2000 Units X $ 2) | $ 1,901 | $ 19,149 | $ 2,851 | |||
Depreciation for Year 5 (1000 Units X $ 2) | $ 1,140 | $ 20,289 | $ 1,711 | |||
SOLUTION ( 2 ) (A) | ||||||
Straight Line method will produce higher net income in year 2 because depecaition expenses in this is lowest in straight line mehtod. | ||||||
SOLUTION ( 2 ) (B) | ||||||
No , Method of depreciation is only a chargin method for expenses it does not means machine is more used. | ||||||
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