Question

Super Saver Groceries purchased store equipment for $20,500. Super Saver estimates that at the end of its 10-year service life, the equipment will be worth $2,500. During the 10-year period, the company expects to use the equipment for a total of 12,000 hours. Super Saver used the equipment for 1,580 hours the first year.

Required:  

Calculate depreciation expense of the equipment for the first year, using each of the following methods.

1. Straight-Line

2. Double-Declining Balance

3. Activity Base

Answer 1

Answer:

1) Straight­line method

Depreciation = ( Asset Cost - Salvage Value)/ No of years of expected life

Depreciation expense = ($20,500 - $2,500) / 10 years = $1,800

2) Double-declining-balance

Depreciation Rate = 2 x (100%/ No of years of expected life )

= 2 x (100%/10 years)

= 20%

Therefore depreciation = Cost of asset x Rate of depreciation

= $20,500 x 20%

=$4,100

3) Activity­based method

Depreciation = (Cost – Salvage Value) * Hours in this year / Total estimated hour

Depreciation expense = ($20,500 - $2,500)1,580 / 12,000 hours = $2,370