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Maximillian Events purchased a machine on 1 July 2016 for a total cost of $80,000. The...

Maximillian Events purchased a machine on 1 July 2016 for a total cost of $80,000. The owner is trying to decide whether to use the straight line, units of production or reducing balance depreciation method for this machine. The machine is expected to last for 4 years and have a residual value of $8,000 at the end of its useful life. Estimated total production is 300,000 units: year 1 is 100,000 units, year 2 is 60,000 units, year 3 is 100,000 units and year 4 is 40,000 units.

For the Reducing Balance method use 44% as the rate.

(a) What would be the written down value of the machine at 30th June 2018 for each depreciation method?

(b) Which depreciation method would give the highest profit in the first year of the machine’s use? Explain your answer.

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Answer #1

a) .Depreciation under Straight line Method = (Cost - Residual Value)/useful life of Asset

=(80000-8000)/4

=$72000/4

=$18000 per year

Written down Value of Machine on 3o June 2018 = Cost - Accumulated Depreciation

. =$80000 - $18000*2

=$80000-$36000

=$44000

Depreciation Under Reducing BAlance method = Cost * Depreciation RAte

Depreciation at 30 June 2017 = $80000*44% = $35200

Book value on 30 June 2017 = $80000 - $35200 = $44800

Depreciation on 30 June 2018 = $44800*44% = $19712

Written down value of MAchine on 30 June 2018 = $80000 - $44800 -$19712 = $25088

b)

Written down Value of Machine on 3o June 20187 SLM method = $62000

Written down value of MAchine on 30 June 2017 Reducing Method = $44800

Straight line method give the Highest profit

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