On January 1, 2005, a machine was purchased for 77,000. The machine has an estim

Question

On January 1, 2005, a machine  was purchased for 77,000. The machine has an estimated salvage value of 5000 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 as follows: 2005,  20,000 hours; 2006, 25,000 hrs; 2007, 15,000 hrs; 2008, 30,000; 2009, 10,000 hrs.

Compute the annual depreciation charges over the machines life assuming a December 31st year end for the following methods.

Straight ligh, sum of years digits, activity method, double declining balance method

Assume a fiscal year end of September 30. Compute the annual depreciation charges over the assets life applying each of the following methods.

Straight line method, Sum of the years digits method, Double declining balance method.

Explanation / Answer

Cost Of Machine 77000 Salvage Value 5000 Deperciable value 72000 useful life 5 years Date of purchase January 1, 2005 Straight line method Deperciation per year = 14400 (72000 / 5) Year 2005 2006 2007 2008 2009 Deperciation 14400 14400 14400 14400 14400 Sum of Digits method Sum of Digits 15 Year 2005 2006 2007 2008 2009 Deperciation 24000 19200 14400 9600 4800 Activity Method Deperciable value 72000 Useful life 100000 Hours Deperciation per hour = 0.72 (72000 / 100000) Year 2005 2006 2007 2008 2009 Deperciation 14400 18000 10800 21600 7200 Double declining method Depericiation rate 40% Year Beginning book value Depericiation Amount Closing Book Value 2005 77,000 30,800 46,200 2006 46,200 18,480 27,720 2007 27,720 11,088 16,632 2008 16,632 6,653 9,979 2009 9,979 3,992 5,988 If the year end on September 30 Straight line method Deperciation per year = 14400 (72000 / 5) Year 2005 2006 2007 2008 2009 Deperciation 10800 14400 14400 14400 14400 Sum of Digits method Sum of Digits 15 Year 2005 2006 2007 2008 2009 Deperciation 18000 20400 15600 10800 6000 Activity Method Deperciable value 72000 Useful life 100000 Hours Deperciation per hour = 0.72 (72000 / 100000) Year 2005 2006 2007 2008 2009 Deperciation 14400 18000 10800 21600 7200 Double declining method Depericiation rate 40% Year Beginning book value Depericiation Amount Closing Book Value 2005 77,000 23,100 53,900 2006 53,900 21,560 32,340 2007 32,340 12,936 19,404 2008 19,404 7,762 11,642 2009 11,642 4,657 6,985

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