A high speed multiple bit drill press costing 720,000 has an estimated salvage v

Question

A high speed multiple bit drill press costing 720,000 has an estimated salvage value of $60,000 and a life of ten years. What is the annual depreciation for each of the first two full years under the following depreciation methods? 1. Double-declining-balance method a) year one, $ b) year two, $ 2. Units of production (activity) method (lifetime output is estimated at 110,000 unit; the press produced 12,000 units in year one and 18,000 in year two) a) year one, b) year two, 3. Sum of the years' digits method: a) year one b) year two 4. Straight line depreciation method: a) year one b) year two.

Explanation / Answer

(1) Double-declining balance method Rate per year = 100%/10 x 2 = 20% (a) Year 1 = 720000 x 0.2 = $144000 (b) Year 2 = 144000 x 0.8 = $115200 (2) Units of production Depreciable amount = 720000 - 60000 = $660000 (a) Year 1 = 12000/110000 x 660000 = $72000 (b) Year 2 = 18000/110000 x 660000 = $108000 (3) Sum of the digits method (a) Year 1 = 660000 x 10/55 = $120000 (b) Year 2 = 660000 x 9/55 = $108000 (4) Straight line depreciation method (a) Year 1 = 660000/10 = $66000 (b) Year 2 = 660000/10 = $66000 Hope this helps!

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