A machine costing $211,200 with a four-year life and an estimated $18,000 salvag

Question

A machine costing $211,200 with a four-year life and an estimated $18,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 483,000 units of product during its life. It actually produces the following units: year 1, 123,200; year 2, 124,200; year 3, 120,600; and year 4, 125,000. The total number of units produced by the end of year 4 exceeds the original estimate—this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.) Required: Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places.) straight-line,unit of Production, DDB DEPREciation for the period

Explanation / Answer

Depreciable amount of the machine = $ 211,200 - $ 18,000 = $ 193,200

Depreciation using Straight-line method:

Depreciation expense using units of production method:

Depreciation per unit of production = $ 193,200 / 483,000 = $ 0.40

Depreciation expense using Double declining balance method:

Please note that under this method, salvage value is not deducted in arriving at the basis for computing depreciation.

Step1. Calculate the rate of depreciation under straight-line method: 100 / life of asset = 100 / 4 = 25%

Step 2: Double the rate obtained in Step 1, i.e 25% x2 = 50% The resulting rate is the DDB depreciation rate, to be calculated on the book value each year.

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