Question

Wildhorse Ltd, purchased a new machine on April 4, 2014, at a cost of $172,800. The company estimated that the machine would have a residual value of $18,000. The machine is expected to be used for 9,000 working hours during its four year life. Actual machine usage was 1,300 hours in 2014.2.600 hours in 2015: 2,100 hours in 2016; 1,900 hours in 2017, and 1.700 hours in 2018. Wildhorse has a December 31 year end. Calculate depreciation for the machine under each of the following methods: (Round expense per unit to 2 decimal places, eg. 2.75 and final answers to O decimal places, e.g. 5,275.) (1) Straight-line for 2014 through to 2018. 2014 expense $ 2015 expense $ 2016 expense 2017 expense 2018 expense $ (2) Diminishing-balance using double the straight-line rate for 2014 through to 2018.

Answer 1

Year Formula Calculation Amount Straight Line (Cost - Residual Value)/Useful Life 2014 expense (172800-18000)/4*9/12 $ 29,025 Deprection is calcuated for 9 months from April to December thus 9/12. 2015 expense (172800-18000)/4 $ 38,700 2016 expense (172800-18000/4 $ 38,700 2017 expense (172800-18000)/4 $ 38,700 The 4 years life of the asset will end on March 2018. Deprection is calcuated for 3 months from Jan to March thus 3/12 2018 expense (172800-18000)/4"3/12 $ 9,675 Total $ 154,800 2 x Depreciation as per Straight line 2 Diminisihing Balance 2014 expense 29025*2 $ 58,050 2015 expense 38700*2 $ 77,400 2016 expense 387002 $ 77,400 2017 expense 38700*2 $ 77,400 2018 expense 96752 $ 19,350 Total $ 309,600 (Cost - Residual Value) X Hours usagel Total working hours 3 Units of production 2014 expense (172800-18000) *1300/9000 $ 22,360 2015 expense (172800-18000) *2000/9000 $ 34,400 2016 expense (172800-18000)*2100/9000 $ 36,120 2017 expense (172800-18000) *1900/9000 $ 32,680 2018 expense (172800-18000)*1700/9000 $ 29,240 Total $ 154,800 b The highest depreciation over the life of the asset is reported under the diminishing balance method of $309,600 Answer: Diminishing balance method The highest net income will occur under the method for which the depreciation expense is minimum because depreciation is decution from the income. Both Straight Line and Units of production method has the same lowest total depreciation. Answer: Straight line and Units of production method Depreciation is a non cash activity as it does not involve any inflow or outflow of cash. Answer: No impact Please give as likes for the work. Thanks