AKL Machine Works purchased a stamping machine for $135,000 on January 1, 2012.

Question

AKL Machine Works purchased a stamping machine for $135,000 on January 1, 2012. The machine is expected to have a useful life of 5 years, salvage value of $12,000 and total production life of 250,000 units. During 2012 and 2013, AKL used the stamping machine to produce 23,450 units in each of the years.

A depreciation schedule is a table that calculates an assets depreciation expense annual, beginning book value, ending book value for each year of its useful life.

a. Provide a 5 year depreciation schedule for the machine using straight line depreciation method

b. Provide a 5 year depreciation schedule for the machine using double declining depreciation method.

c. What are the 2012 and 2013 depreciation expense and end of year book value (net) at Dec 31, 2012 and 2012 using the units of production method.

Explanation / Answer

a. Straight-line depreciation method:

Depreciable cost = Cost - Salvage value = $135,000 - $12,000 = $123,000

Annual Depreciation Rate = 100% / Life in years = 100% / 5 years = 20%

b. Double-declining depreciation method:

Straight-line Depreciation Rate = 20%

Double-declining balance depreciation rate = 20% x 200% = 40%

c. Units of production method:

Depreciation rate = Depreciable cost / Total production life = $123000/250000 units = $0.492 per unit

Year Depreciable Cost x Depreciation Rate = Annual Depreciation Expense End of Year Accumulated Depreciation Book Value 2012 123000 20% 24600 24600 98400 2013 123000 20% 24600 49200 73800 2014 123000 20% 24600 73800 49200 2015 123000 20% 24600 98400 24600 2016 123000 20% 24600 123000 0

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