Question

Depreciation Methods On January 2, 2015, Roth, Inc. purchased a laser cutting machine to be used in the fabrication of a part for one of its key products. The machine cost $125,000, and its estimated useful life was four years or 1,200,000 cuttings, after which it could be sold for $5,000. Required a. Calculate each year's depreciation expense for the machine's useful life under each of the following depreciation methods (round all answers to the nearest dollar): 1. Straight-line. 2. Double-declining balance. 3. Units-of-production. (Assume annual production in cuttings of 310,000; 460,000; 300,000; and 130,000.)

Answer 1

1)Straight line method :

Depreciation expense = [cost-savage value]/useful life

                        =[125000-5000]/4

                        = 120000/4

                       = 30000

	Depreciation expense
2015	30000
2016	30000
2017	30000
2018	30000

2)Double declining depreciation method :

Depreciation rate =2 /useful life

                         = 2/4

                          = .50 or 50%

Year	Beginning book value	Rate	Annual depreciation expense	Book value at end
2015	125000	50%	125000*50%= 62500	125000-62500 =62500
2016	62500	50%	62500*50%= 31250	62500-31250=31250
2017	31250	50%	31250*50%= 15625	31250-15625=15625
2018	15625	50%	15625*50%= 7812.5 (rounded to 7813)	15625-7813 = 7812
2019			7812-5000 salvage value at end =2812	5000

**Since book value at end of 2018 is equals to 7812 which is greater than salvage value ,it can be be further depreciated in year 2019

3)Units of production:

Depreciation rate per cuttings =[Cost-salvage value ]/useful life in cutting

                      = [125000-5000]/1200000

                       = 120000/ 1200000

                       = $ .10 per cutting

	Depreciation expense
2015	310000*.10=31000
2016	460000*.10=46000
2017	300000*.10= 30000
2018	130000*.10 = 13000

b)

1)Straight line method :

Depreciation expense = [cost-savage value]/useful life

                        =[125000-5000]/4

                        = 120000/4

                       = 30000 per year

In year 2015 (1Jul-31Dec ) and 2019 (1Jan -30June), Asset is used only for 6months.

	Depreciation expense
2015	15000      [30000*6/12 =15000 ,six month of usage 1July -31Dec]
2016	30000
2017	30000
2018	30000
2019	15000     [1Jan -30June ]

2)Double declining depreciation method :

Depreciation rate =2 /useful life

                         = 2/4

                          = .50 or 50%

Year	Beginning book value	Rate	Annual depreciation expense	Book value at end
2015	125000	50%	125000*50%*6/12 = 31250   = 23437[1July -31Dec ]	125000-31250= 93750
2016	93750	50%	93750*50%= 46875	93750-46875= 46875
2017	46875	50%	46875*50%= 23438	46875-23438=23437
2018	23437	50%	23437*50%= 11719	23437-11719= 11718
2019	11718	50%	11718*50%=5859	11718-5859 = 5859