A high-speed multiple-bit drill press costing $960,000 has an estimated salvage

Question

A high-speed multiple-bit drill press costing $960,000 has an estimated salvage value of $80,000 and a life of ten years. What is the annual depreciation for each of the first two full years under the following depreciation methods? Double-declining-balance method: Year one, $. Year two, $. Units of production (activity) method (lifetime output is estimated at 110,000 units; the press produced 12,000 units in year one and 18,000 in year two): Sum-of-the-years'-digits method: Year one, $. Year two, $. Straight-line depreciation method:

Explanation / Answer

1.Double Declaining balance method:

2.Units of production method

3.Sum of year digits method = Depreciable amount *(Number of years of estimated life
remaining at the beginning of the/n(n+1)/2 ), Where n = no of years of life

Depreciation for the Year 1 =(960,000-80000)*10/55=$160,000

Depreciation for the Year 2 =(960,000-80000)*9/55=$144,000

4.Stright line depreciation method = Depreciable amount/Life period

=(960,000-80000)/10

=88,000 per annum

Depreciation for the Year 1 =$88,000

Depreciation for the Year 2 =$88,000

SL Year                       1                       2 1 Production(units)            12,000            12,000 2 Total production(units)          110,000          110,000 3 Cost of asset          960,000          192,000 4 Salvage value            80,000            80,000 5 Depreciable value          880,000          112,000 6 Depreciation per unit(5/2)                       8                       1 7 Depreciation (6*1)            96,000            12,218

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