Question

Carla Vista Limited purchased a machine on account on April 2, 2018, at an invoice price of $393,310. On April 4, it paid $1,900 for delivery of the machine. A one-year, $3,720 insurance policy on the machine was purchased on April 5. On April 18, Carla Vista paid $7,210 for installation and testing of the machine. The machine was ready for use on April 30. Carla Vista estimates the machine's useful life will be five years or 6,391 units with a residual value of $83,610. Assume the machine produces the following numbers of units each year: 907 units in 2018; 1,481 units in 2019; 1,427 units in 2020; 1,379 units in 2021; and 1,197 units in 2022. Carla Vista has a December 31 year end. Determine the cost of the machine. Cost of the machine

Answer 1

Cost of Machine = $393310+1900+7210 = $402420

Straight line Depreciation = (Original Value - Salvage Value) / Useful Life

1.

Year	Depreciable Cost	Depreciation Expense	Acc Dep	Book Value
2018	$      3,18,810	$           42,508	$      42,508	$          3,59,912
2019	$      2,76,302	$           63,762	$   1,06,270	$          2,96,150
2020	$      2,12,540	$           63,762	$   1,70,032	$          2,32,388
2021	$      1,48,778	$           63,762	$   2,33,794	$          1,68,626
2022	$         85,016	$           63,762	$   2,97,556	$          1,04,864
2023	$         21,254	$           21,254	$   3,18,810	$             83,610

2. Double Diminishing Balance method

Date	Book Value	DDB Rate	Depreciation Expense	Acc Dep	Book Value
2018	$      4,02,240	40%	$      1,07,264	$          1,07,264	$         2,94,976
2019	$      2,94,976	40%	$      1,17,990	$          1,17,990	$         1,76,986
2020	$      1,76,986	40%	$         70,794	$          1,88,785	$         1,06,191
2021	$      1,06,191	40%	$         22,581	$          2,11,366	$            83,610
2022	$         83,610	40%	$                  -	$          2,11,366	$            83,610
2023	$         83,610	40%	$                  -	$          2,11,366	$            83,610

3. Units of Production Method

Date	Depreciation per unit	Number of Units	Depreciation Expense	Acc Dep	Book Value
2018	$           49.88	907	$         45,245	$             45,245	$         3,57,175
2019	$           49.88	1481	$         73,879	$          1,19,123	$         2,83,297
2020	$           49.88	1427	$         71,185	$          1,90,308	$         2,12,112
2021	$           49.88	1379	$         68,790	$          2,59,099	$         1,43,321
2022	$           49.88	1197	$         59,711	$          3,18,810	$            83,610
2023	$           49.88	0	$                  -	$          3,18,810	$            83,610

Double Diminishing balance method causes net income to be lower in early years