Question

Problem 10-2A Depreciation methods A machine costing $257,500 with a four-year life and an estimated $20,000 salvage value is installed in Luther Company's factory on January 1. The factory manager estimates the machine will produce 475.00 units of product during its life. It actually produces the following units: 220,000 in Year 1, 124.600 in Year 2, 121,800 in Year 3, and 15,200 in Year 4. The total number of units produced by the end of Year! exceeds the original estimate-this difference was not predicted. Note: The machine cannot be depreci- ated below its estimated salvage value. Required Prepare a table with the following column headings and compute depreciation for each year and total depreciation of all years combined) for the machine under each depreciation method. Year Straight-Line Units-of-Production Double Declining-Balance Check Year 4: units-of- production depreciation, $4,300; DDB depreciation, $12.187

Answer 1

a) straight line Depreciation Machine Cost = 257,500 Salvage value = 20,000 Useful life he years Annual de predation = Cost of Machine - salvagevola Useful life 257,500 - 20000 4. 232,500 - =$59,375 -NmT Year Depreciation Expensel 59,375 59375 59,375 59,375 T Total 237,500 - Depreciable Cast. b) units of Production Depreciation Depreciation per unit: Depreciable cost S No.of units during its life. 237,500 475000 units = $0.50 Year Depreciable bedre | Deprecia Hon Units Depreciation Expense Per unit. 220000 0.50 110,000 124,600 0.50 62,300 121,200 0.50 60.900 8600 0.50 I-dom 4300 rebotes I 475,000 237, sod

Nole? Year 4 -> Machine Costa Depreciation Expense of years - 257,500 - C110000+62,300 + 60,900) • 252,500 - 233,20 0 = 24,300 . Depreciation Exp: 214,300 – Salvoge volue Cyell = 262,300 - 20000 = 4,300 si Depreciable units - 4300 - 8600 coouble Declining Balance Depreciation Depreciation Rate = 2 * hol life - 2x => 50%. Beginning of Depreciation Depreciation Period Book Year Rate Expense. eyean 4) value 257500 12875 0 50'/ 50% 1 - NI sol 64,375 32,1807 128750 64,375 32,188 12,187* (Refer note) 237,500 Note's Machine Can't be depreciated below salvage value. year 4 32,187 - 20,000 (salvage value). = 12,187 -> Depreciation Expense As, here if last year Book value De preciates with sol then Result will be less than salvage value. Therefore, We need to deduct the sahrage value from Book value of year here