A machine which cost $500,000 is acquired on October 1, 2017. Its estimated salv

Question

A machine which cost $500,000 is acquired on October 1, 2017. Its estimated salvage value is $50,000 and its expected life is eight years. (expected life in units of activity is 200,000 units) (1) Calculate depreciation expense for 2017 and 2018 by each of the following methods, showing the figures used. (a) Straight line rate (b) Double-declining balance (c) Sum-of-the-years'-digits (d) Units of activity, if the machine produced 30,000 units in 2017 and 50,000 units in 2018 (2) At the end of 2018, which method results in the larger accumulated depreciation amount?

Explanation / Answer

(1) Calculate depreciation expense for 2017 and 2018 by each of the following methods, showing the figures used.

(a) Straight line rate = (500000-50000/8) = 56250

2017 Dep = 56250*3/12 = 14062.50

2018 dep = 56250

(b) Double-declining balance

Straight line rate = 100/8= 12.5%

Double decline rate = 12.5*2=25%

2017 dep = (500000*25%*3/12) = 31250

2018 dep = (500000*25%*9/12+500000*75%*25%*3/12) = 117187.50

(c) Sum-of-the-years'-digits

Sum of year digit = (8+7+6+5+4+3+2+1) = 36

2017 Dep = (450000*8/36*3/12) = 25000

2018 dep = (450000*8/36*9/12+450000*7/36*3/12) = 96875

(d) Units of activity, if the machine produced 30,000 units in 2017 and 50,000 units in 2018

Dep rate = 450000/200000 = 2.25 per unit

2017 dep = 30000*2.25 = 67500

2018 dep = 50000*2.25 = 112500

e) At the end of 2018, unit of activity method results in the larger accumlated depreciation amount.

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