Question

Calculate the depreciation for Y1, Y2 and Y3 using - Acquired on September 1, a machinery Cost - 105,000, scrap 5,000, useful life 5 years, estimated productivity 5,000 and Y1 hours- 1400, Year 2 hours - 2400

a. Straight Line Method

b. Sum of the year digit

c. Double declining balance method

d. unit of production

Show equation and answer please thank you

Answer 1

a) Straight Line Method:

Depreciation expense = (Cost of the Machinery - Salvage Value) / Total number of years of useful life

= ($105,000 - $5,000) / 5 years

= $100,000 / 5 years

= $20,000

The depreciation expense under straight line method is same for all the years so the yearly depreciation under straight line method is $20,000, hence, for year 1, 2 & 3, the depreciation expense is $20,000.

Note: The financial year end is not given like December 31, if the financial year end is December 31 then depreciation expense is charges for 4 months only in first year from September 1st to December 31st is $6,667 ($20,000*4/12). Bur for remaining years like 2 & 3, the depreciation expense is $20,000 each year.

b) Sub of years digits method:

Depreciation Expense for year 1 = $105,000 - $5,000*5/15

= $33,333

Depreciation Expense for year 2 = $105,000 - $5,000*4/15

= $26,667

Depreciation Expense for year 3 = $105,000 - $5,000*3/15

= $20,000

If the financial year ends December 31st then depreciation for first year is $11,111 ($33,333*4/12).

c) Double declining balance method:

Depreciation rate under double declining balance method = 100% / 5 years * 2

= 40%

Depreciation expense for first year = $105,000*40/100

= $42,000

Depreciation expense for second year = $105,000 - $42,000 = $63,000*40/100

= $25,200

Depreciation expense for second year = $63,000 - $25,200 = $37,800*40/100

= $15,120

d) Units of production method:

Depreciable rate = $105,000 - $5,000 = $100,000/5,000 units

= $20 per unit

Depreciation expense for first year = $20 per unit * 1,400 units

= $28,000

Depreciation expense for second year = $20 per unit * 2,400 units

= $48,000

Units produced in third year are not given, hence, depreciation for third year is not calculated. If you have the units produced in third year then multiply those units with $20 to get the depreciation expense in year 3.