Your client, Burley Designs, recently acquired a new machine to build bicycle wh
ID: 2372621 • Letter: Y
Question
Your client, Burley Designs, recently acquired a new machine to build bicycle wheels for the tandems, recumbents and trailers they build.
Total machine cost after installation, calibrations and other related capitalized costs was $18,250. The machine has an expected life of 7 years with a residual value of $2000. The machine is capable of producing 20,000 wheels per year. Burley estimates that they will only ask the machine to produce as follows:
Year
Anticipated Product Schedule – Wheels
1
13,500
2
14,250
3
15,000
4
16,200
5
17,000
6
18,000
7
19,100
Required:
Year
Anticipated Product Schedule – Wheels
1
13,500
2
14,250
3
15,000
4
16,200
5
17,000
6
18,000
7
19,100
Explanation / Answer
1. Depreciation as per Straight line method = ($18250 - $ 2000) / 7 yr =$ 2321.42 per annum depreciation 2. Rate of Depreciation under SLM = (2321.42 / 18250) * 100 = 12.72% 3. DEPRECIATION UNDER STRAIGHT LINE METHOD Year Cost - Depreciation = Written down value 1. 18250 - 2321.42= 15928.58 2. 15928.58 - 2321.42 =13607.16 3. 13607.16 - 2321.42 =11285.74 4. 11285.74 - 2321.42=8964.32 5. 8964.32 - 2321.42 =6642.9 6. 6642.9 - 2321.42 = 4321.48 7. 4321.48 - 2321.42 = 2000.06 (residual value ) 4. DEPRECIATION UNDER DOUBLE DECLINE METHOD Double decline method =( 2 * rate of Depreciation under SLM )i.e. 2* 12.72% =25.44% 1st yr dep & written down value: 18250 - (18250 * 25.44%) = 18250 - 4642.8 =13607.2 2nd yr dep & written down value : 13607.2 - (13607.2* 25.44%) = 13607.2 - 3461.67=10145.53 3rd yr dep & written down value: 10145.53 - (10145.53 * 25.44%) =10145.53 - 2581=7564.53 4th yr dep & written down value: 7564.53 - (7564.53* 25.44%) = 7564.53 -1924.42 = 5640.11 5th yr dep & written down value: 5640.11-(5640.11 * 25.44%) = 5640.11- 1435 = 4205.11 6th yr dep & written down value: 4205.11 - (4205.11* 25.44%) = 4205.11 - 1070 =3135.11 7th yr dep & written down value:3135.11 -(3135.11* 25.44%) = 3135.11 - 797.57 =2337.54 5. DEPRECIATION UNDER UNITS OF PRODUCTION METHOD : The following formula is used to calculate depreciation under this method: Depreciation = Number of Units Produced / total Number of Units in its life
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.