Question

AKL Machine Works purchased a stamping machine for $135,000 on January 1, 2012. The machine is expected to have a useful life of 5 years, salvage value of $12,000 and total production life of 250,000 units. During 2012 and 2013, AKL used the stamping machine to produce 23,450 units in each of the years.

A depreciation schedule is a table that calculates an assets depreciation expense annual, beginning book value, ending book value for each year of its useful life.

a. Provide a 5‐ year depreciation schedule for the machine using straight‐ line depreciation method

b. Provide a 5‐ year depreciation schedule for the machine using double declining depreciation method.

c. What are the 2012 and 2013 depreciation expense and end of year book value (net) at Dec 31, 2012 and 2012 using the units of production method.

Answer 1

a. Straight-line depreciation method:

Depreciable cost = Cost - Salvage value = $135,000 - $12,000 = $123,000

Annual Depreciation Rate = 100% / Life in years = 100% / 5 years = 20%

Year	Depreciable Cost	x	Depreciation Rate	=	Annual Depreciation Expense	End of Year
						Accumulated Depreciation	Book Value
								2012	123000		20%		24600	24600	98400
2013	123000		20%		24600	49200	73800
2014	123000		20%		24600	73800	49200
2015	123000		20%		24600	98400	24600
2016	123000		20%		24600	123000	0

b. Double-declining depreciation method:

Straight-line Depreciation Rate = 20%

Double-declining balance depreciation rate = 20% x 200% = 40%

Year	Book Value Beginning of Year	x	Depreciation Rate	=	Annual Depreciation Expense	End of Year
						Accumulated Depreciation	Book Value
								2012	135000		40%		54000	54000	81000
2013	81000		40%		32400	86400	48600
2014	48600		40%		19440	105840	29160
2015	29160		40%		11664	117504	17496
2016	17496				5496	123000	12000

c. Units of production method:

Depreciation rate = Depreciable cost / Total production life = $123000/250000 units = $0.492 per unit

Year	Book Value Beginning of Year	Units produced	x	Depreciation Rate per unit	=	Annual Depreciation Expense	End of Year
							Accumulated Depreciation	Book Value
									2012	135000	23450		0.492		11537	11537	123463
2013	123463	23450		0.492		11537	23074	111926