Question

Question No. 2: ​(2+2 Marks)
On January 1, 2019, Engro Corporation acquired equipment for PKR26,000. The estimated life of the equipment is 5 years or 40,000 hours. The estimated residual value is PKR2,000.



A) Prepare depreciation schedule for 3 years, if Engro Corporation uses unit-of-activity method of depreciation. Equipment used for 10,000 hours in Year 1, 15,000 hours in Year 2 and 5,000 hours in Year 3.

Year
Cost
Depreciation Expense
Accumulated Depreciation
Book Value


























B) Prepare depreciation schedule for 3 years, if Engro Corporation uses double declining balance method of depreciation

Answer 1

Depreciable Cost:

= Original Cost - Salvage Value

= 26,000 - 2,000

= 24,000

Depreciation Schedule (unit-of-activity method):

Year	Cost	Usage	Useful Life	Dep. Cost	Depreciation	Acc. Dep.	Book Value
	(a)	(b)	(c)	(d)	(b) x (d) / (c)	(e)	(a) - (e)
1	26,000	10,000	40,000	24,000	6,000	6,000	20,000
2	26,000	15,000	40,000	24,000	9,000	15,000	11,000
3	26,000	5,000	40,000	24,000	3,000	18,000	8,000
					18,000

Depreciation Rate:

= (100 / Useful life) x 2

= (100 / 5 years) x 2

= 40%

Depreciation Schedule (double-declining balance method):

Year	Cost	Book Value	Dep. Rate	Depreciation	Acc. Dep.	Book Value
		(a)	(b)	(a) x (b)	(c)	(a) - (c)
1	26,000	26,000	40%	10,400	10,400	15,600
2	26,000	15,600	40%	6,240	16,640	9,360
3	26,000	9,360	40%	3,744	20,384	5,616
				20,384