Blake Roofing Company purchased machinery on Oct 1, 2008 for $106,000. The equip

Question

Blake Roofing Company purchased machinery on Oct 1, 2008 for $106,000. The equipment has an estimated useful life of 8 years and an estimated residual value o $10,000. The equipment is expected to be used for 60,000 hours. During 2008, the equipment was used for 5,000 hours and during 2009, the equipment was used for 15,000 hours. Calculate depreciation expense for 2008 and 2009 under each of the following methods.

Depreciation method: 2008 2009
Straight-line: 2008 2009
Double-declining method: 2008 2009
Units-of-production: 2008 2009

Explanation / Answer

a.
Straight Line :

Initial = 106000
FInal price = 10000
useful life n = 8 years

Depreciation = (106000 - 10000)/8 = 12000 depreciation expense

b.
Double Declinining Method:

Depreciation Rate = 1- (residual value/cost)^1/n
= 1- ( 10000/106000)^1/8
= 0.2555

Depreciation at end of 2008 = cost x dpereciation rate = 106000 x 0.2555 = 27088.07

New Cost = 106000 - 27088.07 = 78911.924

Depereciation at end of 2009 = 78911.924 x 0.2555 = 20161.996

c.

UNITS OF PRODUCTION METHOD:

Dperciable COst per unit = (106000 - 10000)/60000 = 1.6 per unit

NOw,

In 2008, dpereciable cost = number of unit x cost = 5000 x 1.6 = 8000

In 2009, depereciable cost = number of unit x cost = 15000 x 1.6 = 24000

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