Question

Pharoah Company purchased a new machine on October 1, 2022, at a cost of $80,100. The company estimated that the machine has a salvage value of $7,380. The machine is expected to be used for 72,000 working hours during its 10-year life. Compute depreciation using the following methods in the year indicated. Declining balance using double the straight line rate for 2022 and 2023. 2022 2023 Depreciation using the Declining balance methods Calculate the depreciation cost per hour. (Round answer to 2 decimal places, .. $1.25) Depreciation cost per hour Units-of-activity for 2022, assuming machine usage was 500 hours. (Round answer to 0 decimal places, e.g. 5,275.) Depreciation using the Units-of-activity method for 2022

Answer 1

Straight line rate = 1 / useful life

= 1 / 10 years = 0.1 or 10%

Declining balance rate = Straight line rate * 2

= 10% * 2 = 20%

Depreciation for 2022 = Cost * Declining balance rate * 3/12 (as purchased on October 1, 2020)

= $80,100 * 20% * 3/12 = $4,005

Depreciation for 2023:

Book value = Cost - Accumulated depreciation

= $80,100 - $4,005 = $76,095

Depreciation for 2023 = Book value * Declining balance rate

= $76,095 * 20% = $15,219

Depreciation cost per hour = ( Cost - Salvage value ) / Total working hours

= ( 80100 - 7380 ) / 72000 = $1.01

Machine was used for 500 hours in 2022,

Thus depreciation for 2022 = Depreciation cost per hour * No of hours

= $1.01 * 500 = $505