Question

Strong Metals Inc. purchased a new stamping machine at the beginning of the year at a...

  1. Strong Metals Inc. purchased a new stamping machine at the beginning of the year at a cost of $950,000. The estimated residual value was $50,000. Assume that the estimated useful life was five years, and the estimated productive life of the machine was 300,000 units. Actual annual production was as follows:

Year

Units

1

70,000

2

67,000

3

50,000

4

73,000

5

40,000

Calculate depreciation expense, accumulated depreciation, and net book value of the machine for the first two years after acquisition under each of the following methods:

  1. Straight-line
  2. Units-of-production
  3. Double-declining balance

Homework Answers

Answer #1

Part a) STRAIGHT LINE METHOD

Depreciation =(Cost - Salvage value)/ useful life

Depreciation =(950000 - 50000)/5 =$180000

Year Opening book value Depreciation Accumulated Dep Net book value
1 950000 180000 180000 770000
2 770000 180000 360000 590000

Part 2) UNITS OF PRODUCTION

Depreciable cost = 950000 - 50000 =$900000

Year Opening book value units Depreciation Accumulated depreciation Net Book value
1 950000 70000 900000*70000/300000=210000 210000 740000
2 740000 67000 900000*67000/300000=201000 411000 539000

Part 3) DOUBLE DECLINING BALANCE

Dep Rate =100%/5 =20%

Double declining rate = 20*2 =40%

Year Opening book value Depreciation Accumulated depreciation Net Book Value
1 950000 950000*40%=380000 380000 570000
2 570000 570000*40%=228000 608000 342000
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