On April 1, 2014, Packard-Hewlett (P-H) purchased a new piece of equipment from

Question

On April 1, 2014, Packard-Hewlett (P-H) purchased a new piece of equipment from Apple, Inc. for $865,000. The equipment required P-H to modify their factory floor at a cost of $120,000 and there were freight charges associated with the delivery of the machine of $8,000. P-H expects the machine to last for 7 years and at the end of the 7 years will have a salvage value of $18,000. H-P has a fiscal year end of December 31.

Required: Calculate the annual depreciation charge for 2017 using:

a. The straight line method of depreciation

b. The sum-of-the-years digits method of depreciation

c. The double declining balance method of depreciation

Explanation / Answer

packard -Hewlett (P-H) Calculation of depreciable amount of the equipment Cost of the equipment $8,65,000 Other costs of Installtion Cost of Modification of floor $1,20,000 Freight charges $8,000 Total capitalised value $9,93,000 Less: Salvage Value -$18,000 Depreciable amount $9,75,000 Useful life (years) 7 a. Depreciation per annum under straightline method for year 2017 = $ 975,000 / 7 years = $1,39,286 Depreciation for first year -2014 $ 139,286 x 9/12 = $1,04,464 b. The sum of years digits method of depreciation Depreciation per annum for the year 2017 $1,47,991 Year Book Value year start Total cost depreciable Depreciation percent depreciation expense Accumulated depreciation Book value year end 2014 $9,93,000 $9,75,000 (9/12) x (7/28) 18.75% $1,82,813 $1,82,813 $8,10,188 2015 $8,10,188 $9,75,000 (3/12)x(7/28)+(9/12)x(6/28) 22.32% $2,17,634 $4,00,446 $5,92,554 2016 $5,92,554 $9,75,000 (3/12)x(6/28)+(9/12)x(5/28) 18.75% $1,82,813 $5,83,259 $4,09,741 2017 $4,09,741 $9,75,000 (3/12)x(5/28)+(9/12)x(4/28) 15.18% $1,47,991 $7,31,250 $2,61,750 2018 $2,61,750 $9,75,000 (3/12)x(4/28)+(9/12)x(3/28) 11.61% $1,13,170 $8,44,420 $1,48,580 2019 $1,48,580 $9,75,000 (3/12)x(3/28)+(9/12)x(2/28) 8.04% $78,348 $9,22,768 $70,232 2020 $70,232 $9,75,000 (3/12)x(2/28)+(9/12)x(1/28) 4.46% $43,527 $9,66,295 $26,705 2021 $26,705 $9,75,000 (3/12)x(1/28) 0.89% $8,705 $9,75,000 $18,000 Applicable percentage Numver of estimated remaining useful life remaining at the beginning of the year / SYD SYD = n (n+1) / 2 where n= is estimated useful life 7 (7+1)/2 28 Applicable percentage 7/28 First year 9 months 9/12 9/12 C. The double declining Balance method Depreciation per annum for the year 2017 $2,92,001 Year Net Book Value at the beginning of the year (NBV) Double declining balance depreciation computed as 2 x SL rate x beginning NBV Net Book Value at the end of the year 2014 $9,93,000 (2 x ($ 139,286 /$ 993,000) x $ 993,000)x 9/12 $2,08,929 $7,84,071 2015 $7,84,071 2 x ($ 139,286 /$ 993,000) x $ 784,072 $2,19,959 $5,64,112 2016 $5,64,112 2 x ($ 139,286 /$ 993,000) x $ 564,112 $1,58,253 $4,05,858 2017 $4,05,858 2 x ($ 139,286 /$ 993,000) x $ 405,859 $1,13,858 $2,92,001 2018 $2,92,001 2 x ($ 139,286 /$ 993,000) x $ 292,001 $81,917 $2,10,084 2019 $2,10,084 2 x ($ 139,286 /$ 993,000) x $ 210,085 $58,936 $1,51,148 2020 $1,51,148 2 x ($ 139,286 /$ 993,000) x $ 151,148 $42,402 $1,08,746 2021 $1,08,746 2 x ($ 139,286 /$ 993,000) x $ 108,746 $7,627 $1,01,119

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.