Question

On June 30, 2013, Sun Equipment purchased a precision laser-guided steel punch that has an expected capacity of 300,000 units and no residual value. The cost of the machine was $450,000 and is to be depreciated using the units-of-production method. During the six months of 2013, 24,000 units of product were produced. During 2014, 70,000 units were produced.

Sun would report depreciation in 2013 of:

Answer 1

Units-of-production method is method in which the depreciable value (ie original value - salvage value ) is depreciated over the years in the ratio of units produced during the year to the estimated production capacity

Expected capacity = 300000

Units produced during 2013 = 24000

Cost of the Asset = $450000

Salvage Value = 0

Depreciation for 2013 under Units-of-production method

= {(Cost of asset - Salvage value) / Estimated production capacity } * Units produced during the year

= {(450000-0) / 300000 } *24000 = 1.5 * 24000 = 36000

Depreciation for 2013 under Units-of-production method is $36000