Question

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Computing Depreciation Using Various Depreciation Methods To demonstrate the computations involved in several methods of depreciating a fixed asset, the following data are used for equipment purchased on January 1, 2020. Cost and residual value Estimated service life: Acquisition cost $10,000 Years 5 Residual value $400 Service hours 8,000 Productive output (units) 19,200 Required Compute annual depreciation using each of the following methods. a. Straight-line depreciation: Compute the depreciation rate and amount for each year. Depreciation Rate 1,440 x 2020 2021 2022 2023 2024 Depreciation Expense $ 1,400 x $ 1,440 x $ 1,440 * $ 1,440 x $ 1,440 x b. Units-of-production method using service hours as a measure of input: Compute the depreciation rate and amount of depreciation expense for the first year assuming 1,760 service hours of actual operation. Depreciation Rate 1.2 2020 1,584 x Depreciation Expense c. Units-of-production method using units produced as a measure of output: Compute the depreciation rate and amount of depreciation expense for the first year assuming 3,200 units of output. Depreciation Rate 0.5 2020 1,200 x Depreciation Expense $ d. Sum-of-the-years'-digits method: Compute the depreciation amount for each year. 2020 2021 2022 2023 2024 2,399.76 * $ 1,920.24 * $ 1,440 * $ 959.76 * $ 480.24 $ e. Double-declining balance method: Compute the depreciation amount for each year. 2022 2023 2020 2024 2021 1,800 X $ $ 3,000 X $ 1,080 X $ 648 X 5 672 X

Answer 1

a) Depreciation Rate SLM

Annual depreciation expense = (Cost - Salvage)/Life

Annual Depreciation expense = (10000-400)/5=1920

Depreciation Rate = Annual Depreciation Expense/(Cost -Salvage)

Dep Rate = 1920/(10000-400)=20%

	2020	2021	2022	2023	2024
depreciation Expense	1920	1920	1920	1920	1920

b) Units of production Method

Depreciation per unit = (Cost-Salvage)/Service Hours = (10000-400)/8000=1.20

Depreciation expense = No. of Hours Actual Operation *Depreciation per unit = 1760*1.20=2112

c)

Units of production Method

Depreciation per unit = (Cost-Salvage)/Expected units = (10000-400)/19200=0.50

Depreciation expense = No. of Units producted *Depreciation per unit = 3200*0.50=1600

d) Sum of year Digit Method

Year	Depreciation Base	Remining Life	Depreciation Proportion	Depreciation Expense	Book Value
1	9600	5	= 5/15	=9600*5/15=3200	6400
2	9600	4	=4/15	2560	3840
3	9600	3	=3/15	1920	1920
4	9600	2	=2/15	1280	640
5	9600	1	=1/15	640	Nil

Sum of year digit =1+2+3+4+5=15

e) Double Declining method

Calculate Straight Rate = 1/ Useful Life = 1/5=0.2 or 20%

Calculte double declining rate = Straight Line Rate *2= 0.2*2=0.4 or 40%

Depreciation expense

2020	2021	2022	2023	2024
4000	2400	1440	864	518.40
(10000*40%)	(6000*40%)	(3600*40%)	(2160*40%)	(1296*40%)
Book Value =cost - accumulated dep = 10000	=1000-4000	=10000-4000-2400	=10000-4000-2400-1440	=10000-4000-2400-1440-864