Question

Windsor Corp. purchased machinery for $312,000 on May 1, 2020. It is estimated that it will have a useful life of 10 years, salvage value of $15,000, production of 237,600 units, and working hours of 25,000. During 2021, Windsor Corp. uses the machinery for 2,650 hours, and the machinery produces 27,540 units. From the information given, compute the depreciation charge for 2021 under each of the following methods. (Round intermediate calculations to 2 decimal places, e.g. 5.25 and final answers to 0 decimal places, e.g. 45,892.) (a) Straight-line - (b) Units-of-output - (c) Working hours - (d) Sum-of-the-years'-digits - (e) Declining-balance (use 20% as the annual rate) $

Answer 1

A. Straight line method.

>> Depreciation per annum = ( $ 312,000 - $ 15,000 ) / 10 = $ 29,700

>> Depreciation for 2020 = $ 29,700 * ( 8 /12 ) = $ 19,800.

>> Depreciation for 2021 = $ 29,700.

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B. Units of output.

>> Depreciation per unit = ( $ 312,000 - $ 15,000 ) / 237,600 = $ 1.25.

>> Depreciation for 2021 = 27,540 * $ 1.25 = $ 34,425.

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C. Working ours.

>> Depreciation per hours = ( $ 312,000 - $ 15,000 ) / 25,000 = $ 11.88

>> Depreciation for 2021 = 2,650 * $ 11.88 = $ 31,482.

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D. Sum of digits method

>> Sum of years = 10 ( 10 +1 ) / 2 = 55.

>> Depreciation for 2020 = ( $ 312,000 - $ 15,000 ) * ( 10 / 55 ) * ( 8 / 12 ) = $ 36,000.

>> Depreciation for 2021 = ( $ 312,000 - $ 15,000 ) * ( 9.33 / 55 ) = $ 50,400.

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E . Double declining balance

>> Depreciation rate = 200 / 10 = 20 %.

>> Depreciation for 2020 = $ 312,000 * 20 % * ( 8 /12 ) = $ 41,600.

>> Depreciation for 2021 = ( $ 312,000 - $ 41,600 )* 20 % = $ 54,080.

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