Question

Financial Statements Analysis Online Assignment Question #4 Home center Inc. a furniture whole seller acquired new equipment at a cost of $150,000 at the beginning of the fiscal year. The equipment as an estimated life of five year and an estimated residual value of $12,000. President of Home center has requested information regarding alternative depreciation methods. Expected useful life of machine is 12,000 hours. Actual annual hourly operations of the machine is as below: Year Hours Used 2016 3600 Hours 2017 2800 Hours 2018 2200 Hours 2019 2000 Hours Required: a) Calculate yearly deprecation amount and the accumulated depreciation amount under the following methods; i) Straight line method ii) Reducing balance method iii) Double declining method iv) Units of activity method v) Sum of year digit method

Answer 1

i]	Depreciation per year = (150000-12000)/5 =	$           27,600
	Year	Beginning Book Value	Depreciation for the Year	Accumulated Depreciation	Ending Book Value
	1	$        1,50,000	$           27,600	$            27,600	$      1,22,400
	2	$        1,22,400	$           27,600	$            55,200	$          94,800
	3	$           94,800	$           27,600	$            82,800	$          67,200
	4	$           67,200	$           27,600	$        1,10,400	$          39,600
	5	$           39,600	$           27,600	$        1,38,000	$          12,000
	Total		$        1,38,000
ii]	Rate = 1 - (Scrap / Cost of Machine)1/Years
	= 1-(12000/150000)^(1/5) =	39.66%
	Year	Beginning Book Value	Depreciation for the Year	Accumulated Depreciation	Ending Book Value
	1	$        1,50,000	$           59,490	$            59,490	$          90,510
	2	$           90,510	$           35,896	$            95,386	$          54,614
	3	$           54,614	$           21,660	$        1,17,046	$          32,954
	4	$           32,954	$           13,070	$        1,30,116	$          19,884
	5	$           19,884	$              7,884	$        1,38,000	$          12,000
	Total		$        1,38,000
iii]	Rate of depreciation = (100%/5)*2 = 40%.
	Year	Beginning Book Value	Depreciation for the Year	Accumulated Depreciation	Ending Book Value
	1	$        1,50,000	$           60,000	$            60,000	$          90,000
	2	$           90,000	$           36,000	$            96,000	$          54,000
	3	$           54,000	$           21,600	$        1,17,600	$          32,400
	4	$           32,400	$           12,960	$        1,30,560	$          19,440
	5	$           19,440	$              7,440	$        1,38,000	$          12,000
	Total		$        1,38,000
iv]	Rate of depreciation per hour = (150000-12000)/12000 =	$              11.50
	Rounded off to $11.50 per unit.
	The depreciation schedule will look as below:
	Year	Beginning Book Value	Hours used	Depreciation for the Year [Units produced * $11.50]	Accumulated Depreciation	Ending Book Value
	1	$        1,50,000	$              3,600	$            41,400	$          41,400	$      1,08,600
	2	$        1,08,600	$              2,800	$            32,200	$          73,600	$          76,400
	3	$           76,400	$              2,200	$            25,300	$          98,900	$          51,100
	4	$           51,100	$              2,000	$            23,000	$      1,21,900	$          28,100
	5
	Total		10600	$ 1,21,900.00
v]	Year	Beginning Book Value	Depreciation Factor	Depreciation for the Year	Accumulated Depreciation	Ending Book Value
	1	$        1,50,000	33.33%	$            46,000	$          46,000	$      1,04,000
	2	$        1,04,000	26.67%	$            36,800	$          82,800	$          67,200
	3	$           67,200	20.00%	$            27,600	$      1,10,400	$          39,600
	4	$           39,600	13.33%	$            18,400	$      1,28,800	$          21,200
	5	$           21,200	6.67%	$              9,200	$      1,38,000	$          12,000
	Total			$        1,38,000
	Factor for 1st year = 5/15 = 33.33%
	For 2nd year = 4/15 = 26.67%
	15 = the sum of the digits of the years = 1+2+3+4+5 = 15
	Depreciation = 138000*Factor.