Question

On October 1, 2021, the Allegheny Corporation purchased equipment for $233,000. The estimated service life of the equipment is 10 years and the estimated residual value is $2,000. The equipment is expected to produce 420,000 units during its life.
 
Required:
Calculate depreciation for 2021 and 2022 using each of the following methods. Partial-year depreciation is calculated based on the number of months the asset is in service.

Answer 1

Calculation of Depriciation expense using Straight line method for 2021 and 2022 :

Depreciation Expense = ( Cost of equipment - Residual value ) / Useful life of the equipment

= ( $233,000 - $2,000 ) / 10 years

= $23,100

Depreciation Expense for 2021 = Depreciation Expense X Number of months the asset is in service

= $23,100 X 3 months / 12 months

= $5,775

Depreciation Expense for 2022 = $23,100 (for full year)