Question

An item of equipment acquired on January 1, at a cost of $45,000. The equipment has an estimated life of three years, (45,000 hour) and an estimated salvage of $10,000.

The equipment was used for the first year for 8,700 hour, for the second year for 3,300 hour and for the third year for 7,500 hour.

Determine the depreciation and the book value for three years, using the declining balance method, and the units of production method.

Answer 1

Double declining method

Depreciation rate per annum= Twice the straight-line depn. Rate

ie. 2*(1/3)= 66.67% per annum

till the salvage value is reached

Year	Annual depn.=Book value*66.67%	Book value
1	2=Prev.3*66.67%	3=Prev.3-current yr.depn.
0		45000
1	30001.5	14998.5
2	4998.5	10000
3

Units of production method

To depreciate 45000-salvage,10000= $ 35000 of the asset

in 45000 hrs.

so, depreciation calculated for the given production hrs.

Year	Annual depn.=35000/45000*Prodn.hrs.	Book value
0			45000
1	8700/45000*35000=	6766.67	38233.33
2	3300/45000*35000=	2566.67	35666.67
3	7500/45000*35000=	5833.33	29833.33
	Total= 19500 hrs.	15166.67