Question

Q.3 An equipment has been purchased for a project to be completed in 6 years. The initial cost of equipment was Rs. 7,500,000. It is estimated that the used equipment can be sold in auction at a price of Rs. 1,200,000 after completion of the project. The expected/planned yearly usage of the equipment is as follows: Year Equipment Usage (Hours) 1 140 2 170 3 230 4 80 5 110 6 70 Develop the yearly depreciation schedule of the equipment according to: a) Sum-of-Years-Digit Method b) Units-of-production Method c) Double Declining Balance Method

Answer 1

Calculation of Depreciation Schedule

Part a) Sum of Years Digit Method

Depreciation base =(Cost - Salvage value) =7500000 -1200000=$6300000

Year	Depreciation base	Remaining life of machine	Depreciation fraction	Depreciation Expense	Book value
1	6300000	6	6/21	6300000*6/21=1800000	5700000
2	6300000	5	5/21	6300000*5/21=1500000	4200000
3	6300000	4	4/21	6300000*4/21=1200000	3000000
4	6300000	3	3/21	6300000*3/21=900000	2100000
5	6300000	2	2/21	6300000*2/21=600000	1500000
6	6300000	1	1/21	6300000*1/21=300000	1200000

Part b) Units of production method

Depreciation Base =7500000-1200000=$6300000

Year	usage hours	units of production rate	Depreciation expense	Book value
1	140	140/800=0.175	6300000*0.175=1102500	6397500
2	170	170/800=0.2125	6300000*0.2125=1338750	5058750
3	230	230/800=0.2875	6300000*0.2875=1811250	3247500
4	80	80/800=0.1	6300000*0.1=630000	2617500
5	110	110/800=0.1375	6300000*0.1375=866250	1751250
6	70	70/800=0.0875	6300000*0.0875= 551250	1200000
	Total 800

Part c) Double Declining Balance Method

Depreciation as per SLM = (7500000-1200000)/6=$1050000
Depreciation Rate as per SLM = 1050000/6300000*100= 16.67%

Double declining rate =16.67*2=33.33%

Year	Depreciation base	Rate	Depreciation expense	Book Value
1	7500000	33.33%	2500000	5000000
2	5000000	33.33%	1666667	3333333
3	3333333	33.33%	1111111	2222222
4	2222222	33.33%	740741	1481481
5	1481481	19%	281481	1200000
6		0	0	1200000