Question

3. What method yields the mo OB, 14. for $108,000 2.000 operating 250 hours during 10-3B Depreciation by three methods; partial years Layton Company purchased tool sharpening equipment on October 1, 2014 te equipment was expected to have a useful life of three years, or 12.0 2014, for hours, and a residual value of $7,200. The equipment was used for 1,350 2014, 4,200 hours in 2015, 3,650 hours in 2016, and 2,800 hours in 2017 Instructions ecember 31, 2014 -of-output method. Determine the amount of depreciation expense for the years ended Decem 2015, 2016, and 2017. by (a) the straight-line method, (b) the units-of-on and (c) the double-declining-balance method.

Answer 1

Solution:

Depreciation Expense per year and total depreciation:

Year	Straight-Line Method	Units-of-Output Method	Double-Declining-Balance Method
2014	$                8,400	$             11,340	$                   17,998
2015	$              33,600	$             35,280	$                   59,995
2016	$              33,600	$             30,660	$                   20,002
2017	$              25,200	$             23,520	$                      2,804
Totals	$           100,800	$           100,800	$                 100,800

Notes:

a) Straight-Line Method Depreciation = ( Cost - Salvage Value) / Number of years

= ( $ 108,000 - $ 7,200) / 3 years = $33,600.

b) First year depreciation is calculated for 3 months and last year depreciation is calculation for 9 months and adjusted with salvage value.

2) Units-of-Output Method

Year	Units-of-Production	Units	Calculation
2014	$       11,340	1,350	(108000-7200)/12000 hrs * 1350 hrs
2015	$       35,280	4,200	(108000-7200)/12000 hrs * 4200 hrs
2016	$       30,660	3,650	(108000-7200)/12000 hrs * 3650 hrs
2017	$       23,520	2,800	(108000-7200)/12000 hrs * 2800 hrs
Totals	$     100,800	12,000

3) Double-Declining-Balance Method:

Year	Opening Balance	Depreciation	Accumulated Depreciation	Closing Balance
2014	$           108,000	$             17,998	$                   17,998	$          90,002
2015	$              90,002	$             59,995	$                   77,993	$          30,007
2016	$              30,007	$             20,002	$                   97,996	$          10,004
2017	$              10,004	$               2,804	$                 100,800	$            7,200

Under double declining method, depreciation is calculation as follows:

Depreciation Rate = 1/ useful life * 2 = (1 / 3) * 2 = 66.66 % per year on opening balance.

Salvage is considered in the end and adjust the last year depreciation based on salvage value

2017 Depreciation Expense = 2017 Opening Balance - Salvage Value = $ 10,004 - $ 7,200 = $ 2,804.

Disclaimer:

1) Around $1 differences will be there because of rounding off.