1- Flint Company purchases equipment on January 1, Year 1, at a cost of $553,420
ID: 2587263 • Letter: 1
Question
1- Flint Company purchases equipment on January 1, Year 1, at a cost of $553,420. The asset is expected to have a service life of 12 years and a salvage value of $47,200.
Compute the amount of depreciation for Years 1 through 3 using the straight-line depreciation method
Compute the amount of depreciation for each of Years 1 through 3 using the sum-of-the-years'-digits method.
Compute the amount of depreciation for each of Years 1 through 3 using the double-declining-balance method.
2-Martinez Corp. purchased machinery for $324,450 on May 1, 2017. It is estimated that it will have a useful life of 10 years, salvage value of $15,450, production of 247,200 units, and working hours of 25,000. During 2018, Martinez Corp. uses the machinery for 2,650 hours, and the machinery produces 26,265 units.
From the information given, compute the depreciation charge for 2018 under each of the following methods
Straight-line
Units-of-output
Working hours
Sum-of-the-years'-digits
Declining-balance (use 20% as the annual rate)
Straight-line
Units-of-output
Working hours
Sum-of-the-years'-digits
Declining-balance (use 20% as the annual rate)
Explanation / Answer
Question 1-
Solution:
Straight Line Method
Straight line method is a method of calculating depreciation of an asset.
Under this method depreciation is calculated by dividing depreciable asset value by estimated useful life.
Depreciable Asset Value = Cost of Asset – Salvage Value
In this method, depreciation for each year remains same.
Mathematically,
Annual Depreciation = (Cost of Asset – Salvage Value) / Useful life
Annual Depreciation = ($553,420 - $47,200)/ 12 = $42,185
Year 1 Depreciation = $42,185
Year 2 Depreciation = $42,185
Year 3 Depreciation = $42,185
Sum of Years digits method
This method of depreciation is accelerated depreciation technique which are based on the assumption that assets are generally more productive when they are new and their productivity decreases as they become old.
SYD Depreciation = Depreciable Base x Remaining Useful Life / Sum of Years Digit
Depreciable Base = Cost of Asset – Salvage Value = 553,420 – 47,200 = $506,220
Sum of Years Digit = n(n+1)/2 = 12(12+1)/2 = 78
Year 1 Depreciation = 506,220 x 12 / 78 = $77,880
Year 2 Depreciation = 506,220 x 11/78 = $71,390
Year 3 Depreciation = 506,220 x 10 / 78 = $64,900
Declining-balance method at double the straight-line rate
It is a method of depreciation used by the companies when they want to quickly depreciate an asset.
The asset will depreciate much faster under this method than straight-line because we double the percentage that would be depreciated each year under straight-line.
Salvage value is not subtracted from Cost of Asset when depreciation is calculated by using this method.
The formula for double declining balance is:
Annual depreciation = Book Value * 100% / life * 2
Calculate the percentage that should be used first.
Percentage = 100% / Useful Life x 2 = 100/12*2 = 16.67%
Once the percentage is calculated, it is the same for the rest of the asset’s life.
Depreciation Amount
Year
DDB Depreciation for the period
End of Period
Beginning of period book value
Depreciation Rate
Depreciation Expenses
Accumulated Depreciation
Book Value
1
553,420
16.67%
92,255
92,255
461,165
2
461,165
16.67%
76,876
169,131
384,289
3
384,289
16.67%
64,061
38,509
320,228
Year 1 Depreciation = 92,255
Year 2 Depreciation = 76,876
Year 3 Depreciation = 64,061
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Pls ask separate question for remaining parts.
Year
DDB Depreciation for the period
End of Period
Beginning of period book value
Depreciation Rate
Depreciation Expenses
Accumulated Depreciation
Book Value
1
553,420
16.67%
92,255
92,255
461,165
2
461,165
16.67%
76,876
169,131
384,289
3
384,289
16.67%
64,061
38,509
320,228
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.