Question

Red Brick Company purchased a front-end loader and tractor for $49,000 on April 1 of year 1. The tractor has an estimated useful life of six years or 20,000 hours and a residual value of $4,000. Listed in the chart below is the number of hours the tractor and front-end loader were used during years 1 through 7. Year # of hours used 1,290 3,775 3,690 3,550 3,645 3,450 600 a) Calculate depreciation using the straight line method for years 1 through 7. b) Calculate depreciation using units of production method for years 1 through 7. c) Calculate depreciation using declining balance method for years 1 through 7.

Answer 1

Cost of Asset 49000 Residual Value 4000 Useful Life Depreciable Asset = Cost - Residual value Depreciable Asset 45000 Depreciation p.a = Depreciable asset / Useful Life Depreciation p.a = 7500 Cost of Asset 49000 Residual Value 4000 Total production 20000 Depreciable Asset = Cost - Residual value Depreciable Asset 45000 Depreciation p.u = Depreciable asset / Production units Depreciation p.u = 2.25 Straight line Method Units of Output Year Year Depreciation expenses 5,625 7,500 7,500 7,500 7,500 7,500 1,875 $ Accumulated Depreciaton $ 5,625 $ 13,125 20,625 28,125 35,625 $ 43,125 $ 45,000 45,000 Book value $ 43,375 $ 35,875 28,375 20,875 13,375 $ 5,875 $ 4,000 $ 4,000 Units 1290 3775 3690 3550 3645 3450 600 20000 Depreciable Depreciation Depreciation Accumulated units Per unit expenses Depreciaton Book value 1290 $ 2.25 $ 2,903 $ $ 2,903 $ 46,098 3775 $ 2.25 $ 8,494 $ 11,396 $ 37,604 3690 2.25 8,303 19,699 $ 29,301 3550 2.25 7,988 27,686 $ 21,314 3645 2.25 8,201 35,888 $ 13,113 3450 $ 2.25 7,763 $ 43,650 $ 5,350 600 $ 2.25 $ 1,350 $ 45,000$ 4,000 20000 $ 2.25 $ 45,000 $ 45,000$ 4,000 Total Total

Depreciation rate = ( 1*200 /useful life ) = 33% Double Decline Method Year $ Book value at Beginning of the year 49,000 32,667 21,778 $ 14,519 $ 9,679 6,453 4,302 Accumulate Depreciation Depreciation d rate expenses Depreciaton Book value 33% 16,333 $ 16,333 $ 32,667 33% $ 10,889 $ 27,222 $ 21,778 33% $ 7,259 $ 34,481 $ 14,519 33% $ 4,840 $ 39,321 $ 9,679 33% $ 3,226 $ 42,547 $ 6,453 33% $ 2,151 $ 44,698 $ 4,302 7% $ 302 $ 45,000 $ 4,000 $ 45,000 $ 45,000 $ 4,000 4 5 Total