Question

On January 1, 2021, Canseco Plumbing Fixtures purchased equipment for $54,000. Residual value at the end of an estimated 7 year service life is expected to be $26,000. The company expects the equipment to operate for 16,000 hours. Required: a. Calculate depreciation expense for 2021 and 2022 using sum-of-the-years’-digits assuming the equipment was purchased on January 1, 2021. b. Calculate depreciation expense for 2021 and 2022 using sum-of-the-years’-digits assuming the equipment was purchased on March 31, 2021.

Answer 1

a) depreciation expense for 2021 and 2022 using sum-of-the-years’-digits assuming the equipment was purchased on January 1, 2021.

total depreciable value = cost price - scrap value

= 54,000 - 26,000

= 28,000

sum of useful life' year = 7+6+5+4+3+2+1 = 28

depreciation of 2021 = depreciable value x 7/28

= 28,000 x 7/28

= 7,000

depreciation of 2022 = depreciable value x 6/28

= 28,000 x 6/28

= 6,000

b) Calculate depreciation expense for 2021 and 2022 using sum-of-the-years’-digits assuming the equipment was purchased on March 31, 2021.

total depreciable value = cost price - scrap value

= 54,000 - 26,000

= 28,000

sum of useful life' year = 7+6+5+4+3+2+1 = 28

depreciation of 2021 = depreciable value x 7/28

= 28,000 x 7/28

= 7,000

depreciation from 1st April to 31st december 2021 = 7,000 x 9/12 = 5,250

depreciation of 2022 = depreciable value x 6/28

= 28,000 x 6/28

= 6,000