Question

J & J Furnace Corp. purchased machinery for $315,000 on May 1, 2017. It is estimated that it will have a useful life of 10 years, salvage value of $15,000, production of 240,000 units, and working hours of 25,000. During 2018, Seceda Corp. uses the machinery for 2,650 hours, and the machinery produces 25,500 units.

From the information given, compute the depreciation charge for 2018 under each of the following methods

1. Straight-line
2. Units-of-output
3. Working hours
4. Declining-balance
5. Sum of the years’ digits

Answer 1

Solution:
a.	Straight line
	Depreciation per year = Cost of an asset - salvage value/useful life of an asset
	= $315,000 - $15,000 / 10
	= $30,000
	Depreciation for the year 2018 = $30,000
b.	Units of output
	Depreciation base = $315,000 - $15,000 = $300,000
	Depreciation charge for 2018 = Depreciation base * Production for the year / Total capacity
	= $300,000*25,500/240,000
	= $31,875
c.	Working hours
	Depreciation base = $315,000 - $15,000 = $300,000
	Depreciation charge for 2018 = Depreciation base * Hours worked for the year / Total capacity in hours
	= $300,000*2,650/25,000
	= $31,800
d.	Declining balance
	Depreciation rate = (100/10 years * 2 )/100 = 20%
	In 2017 , depreciation = $315,000 *20% *8/12 = $42,000
	In 2018 , depreciation = ($315,000 - $42,000 )*20% = $54,600
e.	Sum of the years digit
	Depreciation base = $315,000 - $15,000 = $300,000
	Sum of the year = 1+2+3+4+5+6+7+8+9+10 = 55
	Depreciation charge = Remaining useful life if an asset / Sum of years digit * Deprecition base
	= 9/55*$300,000
	= $49,091
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