Question

On January 1, 2017, a machine was purchased for \$90,000. The machine has an estimated residual...

On January 1, 2017, a machine was purchased for \$90,000. The machine has an estimated residual value of \$6,000 and an estimated useful life of 5 years. The machine can operate for 100,000 hours before it needs to be replaced. The company closed its books on December 31 and operates the machine as follow; 2017, 20,000 hours; 2018, 25,000 hours; 2019, 15,000 hours; 2020, 30,000 hours; and 2021, 10,000 hours.

((((((((((((((Instructions))))))))))))))))

A) Compute the annual depreciation charges over the machine’s life assuming a December 31 year-end for each of the following depreciation methods.

1- Straight-line method

2- Activity Method

3- Sum-of-the-years-digits method

4- Double-declining-balance method

B) Assume a fiscal year-end of September 30. Compute the annual depreciation charges over the asset’s life applying each of the following methods.

1- Straight-line method

2- Sum-of-the-years-digits method

3- Double-declining-balance method

Homework Answers

Answer #1
 A. Assuming a December 31 year-end 1- Straight-line method
 Date Depn. Amt. Carrying/Book value 1 2=(90000-6000)/5=16800 3=Prev.3-Current 2 Jan 1 2017 90000 31-Dec-17 16800 73200 31-Dec-18 16800 56400 31-Dec-19 16800 39600 31-Dec-20 16800 22800 31-Dec-21 16800 6000 Total 84000
 2- Activity Method Date Depn. Amt. 1 2 3 4=prev.4-curr.3 Jan 1 2017 90000 31-Dec-17 20000/100000*84000= 16800 73200 31-Dec-18 25000/100000*84000= 21000 52200 31-Dec-19 15000/100000*84000= 12600 39600 31-Dec-20 30000/100000*84000= 25200 14400 31-Dec-21 10000/100000*84000= 8400 6000 84000
 3- Sum-of-the-years-digits method Date Depn. Amt. 1 2 3 4=prev.4-curr.3 Jan 1 2017 90000 31-Dec-17 5/15*84000= 28000 62000 31-Dec-18 4/15*84000= 22400 39600 31-Dec-19 3/15*84000= 16800 22800 31-Dec-20 2/15*84000= 11200 11600 31-Dec-21 1/15*84000= 5600 6000 84000
 4- Double-declining-balance method Depn. Rate under DDB= Twice that of SLM rate on declining balance, each yr.---till salvag e is reached ie. 1/5 yrs.*2= 40% on declining balance
 Date Depn. Amt. 1 2=Prev 3*40% 3=prev.3-current 2 Jan 1 2017 90000 31-Dec-17 36000 54000 31-Dec-18 21600 32400 31-Dec-19 12960 19440 31-Dec-20 7776 11664 31-Dec-21 4666 6998 Total 83002
 B) Assume a fiscal year-end of September 30 1- Straight-line method
 Date Depn. Amt. Carrying/Book value 1 2=(90000-6000)/5=16800 3=Prev.3-Current 2 Jan 1 2017 90000 30-Sep-17 12600 77400 16800/12*9= 30-Sep-18 16800 60600 30-Sep-19 16800 43800 30-Sep-20 16800 27000 30-Sep-21 16800 10200 31-Dec-21 4200 6000 16800/12*3= Total 84000
 3- Sum-of-the-years-digits method Date Depn. Amt. 1 2 3 4=prev.4-curr.3 Jan 1 2017 90000 30-Sep-17 5/15*84000*9/12= 21000 69000 30-Sep-18 (5/15*84000*3/12)+(4/15*84000*9/12)= 23800 45200 30-Sep-19 (4/15*84000*3/12)+(3/15*84000*9/12)= 18200 27000 30-Sep-20 (3/15*84000*3/12)+(2/15*84000*9/12)= 12600 14400 30-Sep-21 (2/15*84000*3/12)+(1/15*84000*9/12)= 7000 7400 31-Dec-21 1/15*84000*3/12= 1400 6000 Total 84000
 4- Double-declining-balance method Depn. Rate under DDB= Twice that of SLM rate on declining balance, each yr.---till salvag e is reached ie. 1/5 yrs.*2= 40% on declining balance
 Date Depn. Amt. 1 2=Prev 3*40% 3=prev.3-current 2 Jan 1 2017 90000 30-Sep-17 27000 63000 90000*40%*9/12 30-Sep-18 25200 37800 30-Sep-19 15120 22680 30-Sep-20 9072 13608 30-Sep-21 5443 8165 31-Dec-21 817 7348 8165*40%*3/12 Total 82652
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