Question

Ivanhoe Company purchased a new machine on October 1, 2017, at a cost of $ 87,800. The company estimated that the machine has a salvage value of $ 8,800. The machine is expected to be used for  64,200 working hours during its  8-year life.

Compute depreciation using the following methods in the year indicated.

Declining-balance using double the straight-line rate for 2017 and 2018. (Round answers to 0 decimal places, e.g. 125)

		2017		2018
Depreciation using the Declining-balance method		$ enter a dollar amount		$ enter a dollar amount

Calculate the depreciation cost per hour. (Round answer to 2 decimal places, e.g. $1.25)

Depreciation cost per hour

$ enter the depreciation cost per hour in dollars rounded to 2 decimal places

Units-of-activity for 2017, assuming machine usage was  410 hours. (Round answer to 0 decimal places, e.g. 125)

Depreciation using the Units-of-activity method for 2017   $ enter the depreciation using the Units-of-activity method in dollars rounded to 0 decimal places

Answer 1

• Working

A	Cost	$            87,800.00
B	Residual Value	$              8,800.00
C=A - B	Depreciable base	$            79,000.00
D	Life [in years]	8
E=C/D	Annual SLM depreciation	$              9,875.00
F=E/C	SLM Rate	12.50%
G=F x 2	DDB Rate	25.00%

• Requirement 1: Double Declining Balance method

2017	2018
$ 5,487.50	$ 20,578.13
[$87800 x 25% x 3/12]	[(87800 – 5487.50) x 25% x12/12]

• Requirement 2

>Depreciation cost per hour = $79000 / 64200 hours = $ 1.23 per hours

>Depreciation using the units of activity method for 2017 = 410 hours x $ 1.23 = $ 504