Save 12 Lecture Notes December 12, 201 ACCOUNTING PRINCIPLES1-FINANCIAL CHAPTER

Question

Save 12 Lecture Notes December 12, 201 ACCOUNTING PRINCIPLES1-FINANCIAL CHAPTER 8 TBC DEPRECIATION Szot purchased a computerized bluepint printer hat will assist in the design and display of plans for factory ,600 hours in year 2 cost of the was $90,000, and its expected useful life is 4 or 12,000 hours). The company can probably sell the printer for $10,000 at the end of 4 years. It was used for 2 400 hours in year 1:3 ,800 hours in year 3, and 1,200 hours in year4 Instructions: 1. Compute the annual depreciation and book (carrying) value for the new printer for each of tho four years rounded to the nearest dollar where under each ofthe tollowing methods: (a) straigt-ine, (b) production, and (c) balance 2. If the printer is sold for $48,000 ater year 2, what would be the gain or loss under each method? 3. What conclusions can you draw from the patterns of yearly depreciation and book value? Do the three methods differ in their impact on Save

Explanation / Answer

1 Straight line depreciation = (Cost of asset - salvage value )/ Life of the asset Depreciation expense = (90000-10000) /4 20000 Book value Depreciation expense 90000 Year 1 20000*12/12 20,000 70,000 Year 2 20000*12/12 20,000 50,000 Year 3 20000*12/12 20,000 30,000 Year 4 20000*12/12 20,000 10,000 2 Double declining method Depreciation rate = [(cost of asset / life of asset ) / cost of asset ] *2 Depreciation rate = [90,000/4)/90,000] *2 Depreciation rate = 50% Depreciation = written down value * depreciation rate Book value at end Year 0 90000 Year 1 Depreciation = 90,000 * 50%   45000 45000 Year 2 Depreciation = 45000 *50% 22500 22500 Year 3 Depreciation = 22500 *50% 11250 11250 Year 4 Depreciation = 11250 *50% 5625 5625 3 Units of production method Depreciation per machine hour = (Cost of asset - salvage value )/ total machine hour Depreciation per machine hour = (90,000-10,000 )/12,000 Depreciation per item 6.666666667 Book value at end Depreciation expense 90000 Year 1 2400*6.67 16000 74000 Year 2 3600*6.67 24000 50000 Year 3 4800*6.67 32000 18000 Year 4 1200*6.67 8000 10000 2 Straight line Selling price of printer at end of year 2 48000 Book value at end of year 2 50000 Profit /(loss) -2000 Double declining Selling price of printer at end of year 2 48000 Book value at end of year 2 22500 Profit /(loss) 25500 Unit production Selling price of printer at end of year 2 48000 Book value at end of year 2 50000 Profit /(loss) -2000

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