on January 1, 2013, a machine was purchased for $90,000. The machine has an esti
ID: 2453989 • Letter: O
Question
on January 1, 2013, a machine was purchased for $90,000. The machine has an estimated residual value of $6,000 and an estimated useful life of 5 years. The machine can operate for 00,000 hours before it needs to be replaced. The company closed its books on December 31 and operates the machine as follows: 2013, 20,000 hours; 2014, 25,000 hours; 2015, 15,000 3 hours; 2016, 30,000 hours; and 2017, 10,000 hours (a) Compute the annual depreciation charges over the machine's life assuming a December 5 31 year-end for each of the following depreciation methods.Explanation / Answer
ACTIVITY METHOD OF DEPRECIATION Machine Depn Hours Depn: Rate Amount YEAR-2013 20000 $0.84 per hr 16800 2004 25000 $0.84 per hr 21000 2015 15000 $0.84 per hr 12600 2016 30000 $0.84 per hr 25200 2017 10000 $0.84 per hr 8400 Depreciation rate = (90000-6000)/100000 = $ 0.84 per machine hour SUM OF THE YEAR'S DIGITS METHOD Sum of the years digits = 1+2+3+4+5 = 15 Depreciable base = 90000-6000 = 84,000 Base SYD Depn Amount fraction Amount YEAR-2013 84000 0.33 28000 2004 84000 0.27 22400 2015 84000 0.20 16800 2016 84000 0.13 11200 2017 84000 0.07 5600 DOUBLE DECLINING BALANCE METHOD Net book Depn Depn Value Rate Amount YEAR-2013 90000 40 36000 2004 54000 40 21600 2015 32400 40 12960 2016 19440 40 7776 2017 11664 40 4666 Normal rate = 20%, DDB = 40% without adjusting salvage value
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