Question

A machine costing $210,000 with a four-year life and an estimated $18,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 480,000 units of product during its life. It actually produces the following units: 123,000 in 1st year, 123,500 in 2nd year, 119,900 in 3rd year, 123,600 in 4th year. The total number of units produced by the end of year 4 exceeds the original estimate—this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.)

Compute depreciation for each year (and total depreciation of all years combined) for the machine under Straight-line depreciation.

	Straight-Line Depreciation Year Depreciation Expense 1 2 3 4 Total $0

Compute depreciation for each year (and total depreciation of all years combined) for the machine under Units of production.

	Units of Production Year Depreciable Units Depreciation per unit Depreciation Expense 1 2 3 4 Total $0

Compute depreciation for each year (and total depreciation of all years combined) for the machine under Double-declining-balance.

	DDB Depreciation for the Period End of Period Year Beginning of Period Book Value Depreciation Rate Depreciation Expense Accumulated Depreciation Book Value 1 % $0 2 % 0 3 % 0 4 % 0 $0

Answer 1

Straight line Depreciation per year = (210000-18000)/4= 48,000

Year 1 48,000

Year 2 48,000

Year 3 48,000

Year 4 48,000

Units of production :

Depreciable units	Depreciation per unit		Depreciation expense
120000	0.4		48000
120000	0.4		48000
120000	0.4		48000
120000	0.4		48000

Double declining balance method

Beginning value	Rate	Depreciation	Net book value	Accumulated Depreciation
2,10,000	50	105000	105000	1,05,000
1,05,000	50	52500	52500	1,57,500
52,500	50	26250	26250	1,83,750
26,250	50	8250	18000	1,92,000

Rate if depreciation computed as = 100/4*2= 50