Question

On October 1, 2018, the Allegheny Corporation purchased machinery for $314,000. The estimated service life of the machinery is 10 years and the estimated residual value is $6,000. The machine is expected to produce 550,000 units during its life.

Required:
Calculate depreciation for 2018 and 2019 using each of the following methods. Partial-year depreciation is calculated based on the number of months the asset is in service.

1. Straight line.
2. Sum-of-the-years’-digits.
3. Double-declining balance.
4. One hundred fifty percent declining balance.
5. Units of production (units produced in 2018, 28,000; units produced in 2019, 43,000).

Calculate depreciation for 2018 and 2019 using straight line method. Partial-year depreciation is calculated based on the number of months the asset is in service.

	Straight-Line Depreciation Choose Numerator: / Choose Denominator: = Annual Depreciation / = Annual Depreciation / = Year Annual Depreciation x Fraction of Year = Depreciation Expense 2018 x = 2019 x = $

Calculate depreciation for 2018 and 2019 using sum-of-the-years’ digits. Partial-year depreciation is calculated based on the number of months the asset is in service.

	Sum-of-the-years' digits depreciation Depreciable Base x Rate per Year x Fraction of Year = Depreciation Expense 10/1/2018 through 12/31/2018 x x = Total depreciation expense - 2018 1/1/2019 through 9/30/2019 x x = 10/1/2019 through 12/31/2019 x x = $ Total depreciation expense - 2019

Calculate depreciation for 2018 and 2019 using double-declining balance. Partial-year depreciation is calculated based on the number of months the asset is in service.

Answer 1

Cost of Machine $ 314,000 Useful Life (In Years) 10 Years Salvage /Residual Value $6,000 Expected Life (In Units) 550,000 Units 1. Calculation of Depreciation under Straight-Line Method Depreciation under Straight-Line Method is calculated as follows: Depreciation per Year Cost of Asset - Residual Value/ No. of Years Depreciation per Year ($314,000 $6,000)/10 Years Depreciation per Year ($ 308,000) 10 Years Depreciation $ 30,800 per annum Straight-Line Depreciation Numerator Cost of Asset Denominator Annual Depreciation No. of Years =Annual Depreciation Residual (Useful Life) Value $308,000 10 Years $30,800 Annual Fraction of Year Depreciation Expense Year Depreciation 30,800x 0,800 |x| 7,700 30,800 2019 12/12

2. Calculation of Depreciation under Sum of Years' Digits Method: Sum of Years Digits 10+9+8+7+6+5+4+3+2+1 55 Sum of Years' Digits Depreciation Depreciable Base Rate | FractionDepreciation Period Expense 10/01/2018 through308,00010/553/12 12/31/2018 Total Depreciation for the Year 2018 14,000.00 14,000.00 01/01/2019 through308,000 10 55 9/12 09/30/2018 42,000.00 10/01/2019 through308,000 9/55 3/1212,600.00 12/31/2019 Total Depreciation for the Year 2019 54,600.00 Depreciation Expense = (Cost of Asset-Residual Value) Unexpired Life/Sum of Years' Digits

3. Calculation of Depreciation under Double Declining Balance Method: First, we shall calculate the depreciate rate under straight-line depreciation and then, multiplied by '2 as it is double declining. Straight-line depreciation rate: [100% / 10 Years] Straight-line depreciation rate: 10 % Double Declining Balance depreciation rate : 10 % * 2 20 % This percentage is to be applied on Cost in the Year 1 and then on the Cost- Accumulated Depreciation for the later years. Depreciation for the Period End of Period Depreciation Fraction Depreciatiocdook Value Period period book Rate of Year value 314,000| 20.00% | 3/12 2018 15,700 15,700298,300 2019 298.300| 20.00% | 12/12 59,660 75,360 238,640

4. Calculation of Depreciation under 150% declining Balance Method: First, we shall calculate the depreciate rate under straight-line depreciation and then, multiplied by '1.50 as it is 150% declining. straight-line depreciation rate 1100% / 10 Years Straight-line depreciation rate : 10 % Double Declining Balance depreciation rate-10 % * 1.5-15 % This percentage is to be applied on Cost in the Year 1 and then on the Cost- Accumulated Depreciation for the later years. Depreciation for the Period End of Period Beginning of Depreciation Fraction Depreciation Accumulated Period Period book Depreciation Book Value value 11,775 302,225 57,109 256,891 2018 314,000| 15.00% | 3/12 2019 302,225| 15.00% | 12/12 45,334

5. Calculation of Depreciation under Units of production Depreciation Method: Depreciation per Unit (Cost of Asset - Residual Value) No. of Units Depreciation per Unit ($ 314,000 $6,000) 550,000 Depreciation per Unit ($ 308,000)/550,000 Depreciation $0.56 Per Unit of 2018 Depreciation Expense: Depreciation per unit rate $0.56 Per Unit Units Produced in 2018 28,000 Units Depreciation in 2018 28,000 Units@ $0.56 per unit $15,680 of 2019 Depreciation Expense: Depreciation per unit rate $0.56 Per Unit Units Produced in 2019 43,000 Units Depreciation in 2019 43,000 Units @ $0.56 per unit $24,080