Question

Todd Service Company purchased a copier on January 1, 20xx. The following information applies to the copier purchased:

Purchase price -	$25,000
Delivery cost -	$     500
Estimated life -	4 years
Estimated copies produced	1,000,000
Salvage value	$ 1,500

The copies produced each year are as follows:

Year 1	250,000 copies
Year 2	270,000 copies
Year 3	320,000 copies
Year 4	160,000 copies

Using Excel, determine the amount of depreciation expense and the net book value for each of the four years (6 years for MACRS) using each of the following methods:

Straight-line
Double-declining balance
Units of production
MACRS, assuming the machine is classified as five-year property. The MACRS rates are included in the Excel template.

	Purchase price -		$25,000		Estimated units produced	1,000,000
	Delivery cost -		$500		Estimated life -	4	years
	Total cost
	Salvage value		$1,500		The machine produced as follows:
	Depreciable base
					Year 1		250,000	units
					Year 2		270,000	units
					Year 3		320,000	units
					Year 4		160,000	units
	Straight Line
	Depreciation Expense	Net Book Value
Year 1
Year 2
Year 3
Year 4
	Double Declining Balance
	Depreciation Expense	Net Book Value	DDB Rate
Year 1
Year 2
Year 3
Year 4
	Units of Production			Units of production rate
	Depreciation Expense	Net Book Value
Year 1
Year 2
Year 3
Year 4
	MACRS
	Depreciation Expense	Net Book Value
				MACRS Rate
Year 1				20.00%
Year 2				32.00%
Year 3				19.20%
Year 4				11.52%
Year 5				11.52%
Year 6				5.76%

Answer 1

Below is mentioned briefly how we get the depreciation amounts under each method. This write up will help you to get a grip over the solution provided easily:

For straight line depreciation we apply the depreciation rate (100%/ 4yrs = 25% per annum) on the depreciable value amount of $24,000 based on useful life.

For Double declining balance we do the following

1. Apply double rate of straight line method (2 x 25% = 50%) on the WDV of the asset

2. In the last year (4th year in this case) we apply the difference of the opening WDV and the scrap value, so that the carrying amount of the asset at the end of year 4 is equal to the residual value

For Depreciation based on units produced, we get the depreciation amount (based on depreciable value) per piece of unit of production and then to get depreciation per annum we multiply this peice rate with the corresponding units produced in that year.

For depreciation under MACRS, we apply the depreciation rate under MACRS to the depreciaable value of the asset.

	Purchase price -		$25,000		Estimated units produced	1,000,000
	Delivery cost -		$500		Estimated life -	4	years
	Total cost		$25,500
	Salvage value		$1,500		The machine produced as follows:
	Depreciable base		$24,000
	Life		4		Year 1		250,000	units
	St line dep p.a.		$6,000.00		Year 2		270,000	units
					Year 3		320,000	units
					Year 4		160,000	units
	Straight Line
	Depreciation Expense	Net Book Value
Year 1	6000	19500
Year 2	6000	13500
Year 3	6000	7500
Year 4	6000	1500
	Double Declining Balance
	Depreciation Expense	Net Book Value	DDB Rate		50%
Year 1	12750	12750
Year 2	6375	6375
Year 3	3187.5	3187.5
Year 4	1687.5	1500	Bal fig at end of Y4 will be $1500. Remaining is depreciation
	Units of Production		100000	Units of production rate			$24000/1000000 units	0.024
	Depreciation Expense	Net Book Value				Units produced	Depn rate	Depn Amt
Year 1	6000	19500				250,000	0.024	6000
Year 2	6480	13020				270,000	0.024	6480
Year 3	7680	5340				320,000	0.024	7680
Year 4	3840	1500				160,000	0.024	3840
	MACRS
	Depreciation Expense	Net Book Value
				MACRS Rate
Year 1	4800	20700		20.00%
Year 2	7680	13020		32.00%
Year 3	4608	8412		19.20%
Year 4	2764.8	5647.2		11.52%
Year 5	2764.8	2882.4		11.52%
Year 6	1382.4	1500		5.76%