Equipment purchased at the beginning of the fiscal year for $150,000 is expected

Question

Equipment purchased at the beginning of the fiscal year for $150,000 is expected to have a useful life of 5 years, or 15,000 operating hours, and a residual value of $30,000.  Compute the depreciation for the first and second years of use by each of the following methods:

(a)

straight-line

(b)

units-of-production (2,500 hours first year; 3,250 hours   second year)

(c)

declining-balance at twice the straight-line rate

(Round the answer to the nearest dollar and show caluculations.)

(a)

straight-line

(b)

units-of-production (2,500 hours first year; 3,250 hours   second year)

(c)

declining-balance at twice the straight-line rate

Explanation / Answer

Hi,

Please find the answer as follows:

Part A - Straight Line

Annual Depreciation = (Cost - Salvage Value)/Life of the Equipment = (150000 - 30000)/5 = 24000

Straight Line Depreciation Rate = Annual Depreciation/(Cost of the Equipment - Salvage Value) = 24000/(120000)*100 = 20%

Depreciation Year 1 = 24000

Depreciation Year 2 = 24000

Part B - Units of Production

Depreciation Year 1 = (Cost - Salvage Value)*Annual Units of Production/Total Operating Hours = (150000 - 30000)*2500/15000 = 20000

Depreciation Year 2 = (Cost - Salvage Value)*Annual Units of Production/Total Operating Hours = (150000 - 30000)*3250/15000 = 26000

Part C - Declining Balance

Depreciation Rate = Straight Line Depreciation Rate*2 = 20%*2 = 40%

Depreciation Year 1 = 150000*.40 = 60000

Depreciation Year 2 = (150000 - 60000)*.40 = 36000

Thanks.

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