A piece of Machinery was purchased on January 1, 2005 for $75,000. It was estima

Question

A piece of Machinery was purchased on January 1, 2005 for $75,000. It was estimated to have a salvage value of $15,000 and a useful life of five years, or 10,000 hours. During 2005 the machine was used 1,910 hrs, 2006 2,95 hrs, 2007 2,280 hrs, 2008 2,210 hrs, 2009 1,505 hrs. Required: Determine the amount of depreciation for each year using the following depreciation methods: Declining Balance, Straight line, & Units of Activity. Shown all work. At the end of 2007 what was the accumulated depreciation for each method? What was the book value at December 31, 2008 under each method? What is the depreciable base for each method?

Explanation / Answer

Calculation of Depreciation Cost after Salvage 75000-15000 = 60000 Straight Line Method Depreciation per year = 60000/5 $ 12000 per year Year 2007 Accumulated Depreciation = 12000*3 = $ 36000 Book Value = 75000-12000*4 = $ 27000 Units of Activity Method Per Hour = 60000/10000 = $ 6 per hour Year Hours Dep Book Value 2005 1910 11460 63540 2006 2095 12570 50970 2007 2280 13680 37290 2008 2210 13260 24030 2009 1505 9030 15000 Accumulated Depreciation on 2007 114+60+12570+13680= $ 37710

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