Question

August 2020, Heavy-lift Helicopters Ltd. purchased a new helicopter for its logging and heavy lift operations at a cost of $ 0.922 million. Based on past experience, management has determined that the helicopter will have a useful life of 11,200 flying hours, at which time it will have an estimated residual value of $ 250,000. During 2020, the helicopter was used for 1,120 flying hours, and in 2021 it was used for 1,420 flying hours. Heavy-lift Helicopters has a December 31 year end and uses the units-of production method of depreciation for its helicopters.

Determine the depreciation expense on this helicopter for 2021 and its carrying amount at December 31, 2021.

Answer 1

First, calcullate the depreciation rate under units of production method.

(Cost - Residual Value) / Useful Life

(922,000 - 250,000) / 11,200 = 60

Then, multiply the depreciation rate to the total hours used for 2020 and 2021.

2020 = 60 x 1,120 = 67,200

2021 = 60 x 1,420 = 85,200

Depreciation expense for 2021 is $85,200 and the carrying amount would be:

Cost - Accumulated depreciation = Carrying Amount

922,000 - 67,200 - 85,200 = $769,600