A machine costing $257.500 with a four-year life and an estimated $20,000 salvag

Question

A machine costing $257.500 with a four-year life and an estimated $20,000 salvage value is i Luther Luther Company's factory on January 1. The factory manager estimates the machine will pro units of product during its life. It actually produces the following units: 220,000 in st y7 2nd year, 121,800 in 3rd year, 15.200 in 4th year. The total number of units produced by the e r, 124,600i of yeas ot be depreciated below its estimated salvage value.) Required Prepare (and a table with the following column headings and compute depreciation for each year depreciation of all years combined) for the machine under each depreciation method. Straight-Line Units-of-Production Double-Declining-Balance Year

Explanation / Answer

CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD Purchase Cost of Machine $            2,57,500.00 Less: Salvage Value $                20,000.00 Net Value for Depreciation $            2,37,500.00 Usefule life of the Assets 4 years Depreciation per year = Value for Depreciation / 4 years =                    59,375.00 Total Depreciation in 4 years = ($ 59,375 X 4)=                2,37,500.00 CALCULATION OF THE DEPRECIATION AS PER ACTIVITY METHOD UNITS OF OUTPUT Purchase Cost of Machine $            2,57,500.00 Less: Salvage Value $                20,000.00 Net Value for Depreciation $            2,37,500.00 Expected to produce units                4,75,000.00 Units Depreciation per unit =                               0.50 Per Unit ($ 237,500 / 475,000 Units) Depreciation for Year 1 = (220000 units * $ 0.50) $            1,10,000.00 Depreciation for Year 2 = (124600 units * $ 0.50) $                62,300.00 Depreciation for Year 3 = (121,800 units * $ 0.50) $                60,900.00 Depreciation for Year 4 = (8,600 units * $ 0.50) $                  4,300.00 (Restricted to 8,600 unit Only) Total Depreciation Charged =                2,37,500.00 CALCULATION OF THE DEPRECIATION AS PER DOUBLE DECLINE METHOD Purchase Cost of Machine $            2,57,500.00 Useful Life = 4 years Depreciation per year = $                64,375.00 (Purchase price / Useful life) Rate of Depreciation = Rate of Depreciation = (1 / 4 Years ) 0.25 or 25% (Depreication / Purchase price ) Double decline deprection rate = 25% * 2 = 50.0% Purchase Value of the Assets $            2,57,500.00 Depreciation for the year 1(A) $            1,28,750.00 Closing balance for the year1 $            1,28,750.00 Opening Balance for the year 2 $            1,28,750.00 Depreciation for the year 2 @ 50% =(B) $                64,375.00 Closing Balance of the year 2 $                64,375.00 Opening Balance for the year 3 $                64,375.00 Depreciation for the year 3 @ 50% = (Ç) $                32,187.50 Closing Balance of the year 3 $                32,187.50 Opening Balance for the year 4 $                32,187.50 Depreciation for the year 4 @ 50% = (D) $                16,093.75 Total Depreciation charged = (A+ B+ C+ D) $            2,41,406.25

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