Question

"A company has acquired a machine at a cost of $ 70,000. Its estimated productive life is 30,000 hours and salvage value is $ 5,000 at the end of 10 years. Its depreciation would be:"

a-"$4,000 "

b-"$6,500 "

c-"$7,000 "

d-"$2,167 "

Answer 1

b -"$6500"

Hourly Rate od depreciation Method is used. It is calculated by Cost of machine minus salvage value divided by total hours. And yearly depreciation is number of hours in an year multiplied by hourly rate of depreciation.

Cost of the machine = $ 70000

less Salvage value    = $ 5000

Depreciable value     = $ 65000

Productive life          = 30000 hours for 10 years

Hourly depreciation   = Depreciable value/ Total hours

= $ 65000/3000 = $ 2.166667

Yearly Hours = Toatl Hours/ life in years

= 30000/10 = 3000

Yearly depreciation = Yearly hours* Hourly depreciation

= $ 2.166667 * 3000 = $ 6500