Question

Problem 9-3A a-b Ivanhoe Limited purchased a machine on account on April 2, 2018, at an invoice price of $331,760. On April 4, it paid $2,070 for delivery of the machine. A one-year, $4,000 insurance policy on the machine was purchased on April 5. On April 18, Ivanhoe paid $8,490 for installation and testing of the machine. The machine was ready for use on April 30. Ivanhoe estimates the machine's useful life will be five years or 6,321 units with a residual value of $86,390. Assume the machine produces the following numbers of units each year: 965 units in 2018; 1,512 units in 2019; 1,482 units in 2020; 1,171 units in 2021; and 1,191 units in 2022. Ivanhoe has a December 31 year end. Ivanhoe estimates the machine's useful life will be five years or 6,371 units with a residual value of $86,390. Assume the machine prod Determine the cost of the machine. Cost of the machine 342320

Answer 1

2. Double diminishing balance method = Beginning Balance x 2 times straight line rate

Year	Opening Carrying amount	Depreciation Expense	Accumulated Depreciation	Carrying Amount
2018	$                  342,320	$              91,285	$              91,285	$         251,035
2019	$                  251,035	$            100,414	$           191,699	$         150,621
2020	$                  150,621	$              60,248	$           251,947	$            90,373
2021	$                    90,373	$                3,983	$           255,930	$            86,390
2022	$                    86,390	$                       -	$           255,930	$            86,390
2023	$                    86,390	$                       -	$           255,930	$            86,390

Maximum Depreciation is such that book value doesnot fall below Salvage Value

3. Units of Production Method
Depreciation = (Original Value - Salvage Value) / Total Capacity
= ($342320-86390)/6321 = $40.49 per unit

Year	Units of Production	Depreciation Expense	Accumulated Depreciation	Carrying Amount
2018	965	$              39,072	$              39,072	$         303,248
2019	1512	$              61,219	$           100,291	$         242,029
2020	1482	$              60,004	$           160,295	$         182,025
2021	1171	$              47,412	$           207,707	$         134,613
2022	1191	$              48,223	$           255,930	$            86,390
2023	0	$                       -	$           255,930	$            86,390

4.
Answer is Double Diminishing Balance method, since it charges depreciation at 200%