Question

On January 1, 2021, the Allegheny Corporation purchased equipment for $223,000. The estimated service life of the equipment is 10 years and the estimated residual value is $14,000. The equipment is expected to produce 256,000 units during its life.

Required:
Calculate depreciation for 2021 and 2022 using each of the following methods.

Answer 1

1	Sum of year of digit method	Depreciation expense
	2021	$                          38,000
	2022	$                          34,200
2	One hundred fifty percent declining balance	Depreciation expense
	2021	$                          33,450
	2022	$                          28,433
3		2021	2022
	Sum of year of digit method	$                            9,500	$ 37,050
	One hundred fifty percent declining balance	$                            8,363	$ 32,196

	Workings:
1	Sum of year of digit method:
	[n*(n+1)] / 2	=	[10*(10+1)] / 2
		=	55
	Year	Depreciable amount	Fraction	Depreciation expense
	2021	$                      2,09,000	10/55	$              38,000
	2022	$                      2,09,000	9/55	$              34,200
2	One hundred fifty percent declining balance:
	Double declining rate	=	(100%/ 10 years) X 1.5
		=	15.00%
	Year	Depreciable amount	Rate	Depreciation expense
	2021	$                      2,23,000	15%	$              33,450
	2022	$                      1,89,550	15%	$              28,433
3	Sum of year of digit method:
	[n*(n+1)] / 2	=	[10*(10+1)] / 2
		=	55
	Year	Depreciable amount	Fraction	Month Fraction	Depreciation expense
	2021	$                      2,09,000	10/55	3/12	$             9,500
	2022	$                      2,09,000	10/55	9/12	$           28,500
		$                      2,09,000	9/55	3/12	$             8,550
	Total 2022				$           37,050
2	One hundred fifty percent declining balance:
	Double declining rate	=	(100%/ 10 years) X 1.5
		=	15.00%
	Year	Depreciable amount	Rate	Month Fraction	Depreciation expense
	2021	$                      2,23,000	15%	3/12	$             8,363
	2022	$                      2,14,638	15%	12/12	$           32,196