Question

A machine costing $207,200 with a four-year life and an estimated $16.000 salvage value is installed in Luther Company's factory on January 1. The factory manager estimates the machine will produce 478,000 units of product during its life. It actually produces the following units: 122,100 in Year 1,124,000 in Year 2, 119,800 in Year 3, 122100 in Year 4. The total number of units produced by the end of Year 4 exceeds the original estimate--this difference was not predicted. (The machine cannot be depreciated below its estimated salvage value.) Required: Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places. Round your answers to the nearest whole dollar) Complete this question by entering your answers in the tabs below. Straight Line Units of Production DDB Compute depreciation for each year (and total depreciation of all years combined) for the machine under the Straight-line depreciation Straight-Line Depreciation Depreciation Expense Year Total S Units of Production >

Answer 1

STRAIGHT LINE DEPRECIATION
DEPRECIATION =(COST OF ASSET-SALVAGE VALUE)/USEFUL LIFE
	(207200-16000)/4 =		$ 47800
UNDER straight line method depreciation will be same for all
years without considering actual unit of production
Total depreciation for all year=depreciable amount=cost of asset -salvage value=191200
YEAR	DEPRECIATION EXPENSE
1	$ 47800
2	$ 47800
3	$ 47800
4	$ 47800
UNITS OF PRODUCTION METHOD
Per unit Depreciation = (Asset cost – SALVAGE value) / estimated units of production
		191200/478000= $ .4 per unit
YEAR	units of production	DEPRECIATION EXPENSE
1	122,100.00	48,840.00	(122100*.4)
2	124,000.00	49,600.00	(124000*.4)			146360
3	119,800.00	47,920.00	(119800*.4)
4	122,100.00	44,840.00	(refer note)
note:
in first 3 years depreciation will be calculated on estimated units of production
Total depreciation for 4 years shouldn’t exceed 191200 that is depreciable amount.
Total depreciation for first 3 years =48840+49600+47920=146360
actual depreciation for 4th year as per formula is 122100*.4=48840
but maximum depreciation that can be charged in 4th year=191200-146360=44840
hence depreciation in 4th year is restricted to 44840
DOUBLE DECLINING METHOD
Depreciation = 2 * Straight line depreciation percent * book value at the beginning of the accounting period
	Book value = Cost of the asset – accumulated depreciation
	Straight line depreciation percent=DEPRECIATION/DEPRECIABLE AMOUNT*100
			47800/191200*100=25%
YEAR	BOOK VALUE (BEGINNING OF YEAR)	DEPRECIATION		BOOK VALUE (END OF YEAR)
				{(BOOK VALUE (BEGINNING OF YEAR)-DEPRECIATION}
1	207,200.00	103,600.00	(2*.25*207200)	103,600.00
2	103,600.00	51,800.00	(2*.25*103600)	51,800.00
3	51,800.00	25,900.00	(2*.25*51800)	25,900.00
4	25,900.00	9,900.00		16,000.00	(REFER NOTE)
NOTE:-
IN 4TH YEAR ACTUAL DEPRECIATION AS PER FORMULA IS 2*.25*25900=12950.
But the depreciation shouldn’t exceed 191200
hence in last year depreciation is restricted to 9900.asset should be shown at salvage value
at the end of useful life