Additional Problem 3 (Part Level Submission) Pina Manufacturing purchased a mach

Question

Additional Problem 3 (Part Level Submission) Pina Manufacturing purchased a machine on August 1, 2017 for use in its factory. Pina paid $310,000 for the machine and estimated that it had a useful life of 10 years, at the end of which time the machine was expected to have a residual value of $26,000. During its life, the machine was expected to produce 189,000 units. During 2017, the machine produced 21,000 units, and produced 31,000 in 2018. The machine was subject to a 20% CCA rate, and Pina's year-end was December 31. Calculate the annual depreciation amount for 2017 and 2018 under the double-declining balance method. (Round answers to 0 decimal places, e.g. 5,275.) 2017 2018 Depreciation amount $

Explanation / Answer

Depreciation rate to be used for double declining method is twice the annual rate under straight line method. The average useful life of the asset is 10 years hence the rate of depreciation is 10%.

Under the double declining method the rate of depreciation shall be 2*10%= 20%

Depreciation for 2017 ((310,000-26,000)*20%*5/12) = 23,667

Depreciation for 2018 (310,000-26000-23667)*20%= 52,067

This method results in greater depreciation expense in each of the early years of an asset's life and smaller depreciation expense in the later years of an asset's life as compared to straight line depreciation.

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