You have been hired by Patterson Planning Corp., an events planning company that recently had a fire in which some of the accounting records were damaged.
In reviewing the fixed asset records, you find three depreciation schedules that are not labeled. They are listed in the following table. One of the assets has a depreciation rate of $4.30 per hour.
| Year | Schedule A | Schedule B | Schedule C |
| 1 | $8,000.00 | $10,125.00 | $8,600.00 |
| 2 | 4,800.00 | 13,500.00 | 6,450.00 |
| 3 | 2,880.00 | 13,500.00 | 7,310.00 |
| 4 | 1,728.00 | 13,500.00 | 6,450.00 |
| 5 | 592.00 | 3,375.00 | 4,300.00 |
| 6 | 6,880.00 | ||
| 7 | 4,730.00 | ||
| 8 | |||
| Total | $18,000.00 | $54,000.00 | $44,720.00 |
2. For each of the depreciation schedules shown on the Patterson Planning Corp. panel, fill in the following information. Leave any cells blank that cannot be determined from the depreciation schedule.
|
A |
B |
C |
|
| Useful life | |||
| Residual value | |||
| Asset cost | |||
| Total operating hours |
1. How would you adjust Schedule B if, at the beginning of Year 3, the asset was estimated to have 5 more years of life remaining, but with a residual value that was $2,500 higher?
The total depreciation for this asset now will be $_________ . The depreciation amount for Year 3 will be $__________ .
1) Schedule A
Depreciation charged under Schedule A is reducing by same rate each year, therefore diminishing balance method of depreciation is used for schedule A.
Depreciation rate charged under this method will be equal to rate of decrease in depreciation from year to year which is calculated as follows:-
Depreciation rate = (Dep. in Year 1 - Dep. in Year 2)/Dep. in Year 1
= ($8,000 - $4,800)/$8,000 = $3,200/$8,000 = 0.40 or 40%
Schedule B
Depreciation charged under Schedule B is constant (i.e. $13,500) over the years except in year 1 and year 5 which is due to time factor (i.e. used for 9 months in year 1 and 3 months in year 5). Therefore Straight line method is used for Schedule B.
Schedule C
As it is given in the question that one of the assets has a depreciation rate of $4.30 per hour, therefore units of production depreciation method is used for schedule C.
|
Asset Description |
Depreciation Schedule Used |
|
Asset producing steady revenues |
Schedule B |
|
Asset generating greater revenues in the early years |
Schedule A |
|
Asset with variable in-service time |
Schedule C |
2) Schedule A
Useful life = 5 years
Residual Value = Can not be Determined
Asset Cost = Depreciation charged in year 1/Depreciation rate
= $6,000/40% = $15,000
Schedule B
Useful Life = 4 years (because in year 1, 9 months depreciation is charged and in year 5, 3 months depreciation is charged).
Annual Depreciation = (Cost - Residual Value)/Useful Life
$13,500 = (Cost - Residual Value)/4 years
Cost - Residual Value = $13,500*4 years = $54,000
Thus cost is $54,000 and residual value is zero. (because total depreciation charged over useful life can not exceed cost).
Residual Value = $0
Asset Cost = $54,000
Schedule C
Useful Life = 7 years
Total Depreciation charged over 7 yrs = $44,720
Total Operating Hours = Total Depreciation charged/Variable rate per hour
= $44,720/$4.30 per hour = 10,400 hrs
Ans- asset remaining book value= $54000-$10125-$13500=$30375
Residual value= $2500
Estimated life=5 years
Depreciation to be charged from year 3= ($30375-$2500)/5=$5575.
You have been hired by Patterson Planning Corp., an events planning company that recently had a...