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). Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 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 1 Choose Denominator: Choose Numerator: Annual Depreciation Annual Depreciation = Year Annual Depreciation x Fraction of Year = Depreciation Expense 2018 2019 Required 1 Required 2 >

Answer 1

Answer 1

Depreciation as per SLM method = (Cost - Residual Value) / Estimated useful life

• 2018 ( Oct to Dec) = [($314,000 - $6,000) / 10 years] * 3 / 12 = $7700
• 2019 = $30,800

Answer 2

Depreciation as per sum of the years's digit method = (Cost - Residual Value) * Remaining life / SYD

Where SYD = 10 (10 +1) / 2 = 55

• 2018 (Oct to Dec) = [($314000 - $6,000) * 10 / 55 ] * 3 / 12 = $14,000
• 2019 =   [($314,000 - $6,000) * 10 / 55 ] * 9 / 12 +  [($314,000 - $6,000) * 9 / 55 ] * 3 / 12 = $42,000 + $12600 = $54,600

Answer 3

Depreciation as per Double Decline Balance method = SLM rate * 2 * Net book value at the beginning

where SLM rate = 1/ 10 = 10 %

• ​2018 (Oct to Dec) = (10 % * 2 * $314,000) * 3 / 12 = $15,700
• 2019 = [ 10 % * 2 * ($314,000 - $15700) ] = $59660

Answer 4

Depreciation as per 150 % Decline Balance method = SLM rate * 2 * Net book value at the beginning

where SLM rate = 1/ 10 = 10 %

• ​2018 (Oct to Dec) = (10 % * 1.5 * $314,000) * 3 / 12 =  $11775
• 2019 = [ 10 % * 1.5 * ($314000 - $11775) ] = $45333.75

Answer 5

Depreciation as per unit of production = Depreciation per unit * units produced in the period

Depreciation per unit = (Cost - Residual Value) / Estimated production = ($314,000 - $6,000) / 550,000 = $0.56 p.u

• 2018 = $0.56 p.u * 28000 units = $15680
• 2019 =   $0.56 p.u * 43,000 units = $24080