Comparing Three Depreciation Methods Waylander Costings Company purchased waterp
ID: 2402926 • Letter: C
Question
Comparing Three Depreciation Methods Waylander Costings Company purchased waterproofing equipment on January 6 for $82 operating hours, and a residual value of $68,400·The equipment was used for 3,000 hours during Year 1, 2,500 hours in Year 2, ?A00 hours in Year 3, and 1,100 hours in Year 4 Required: 8,400. The equipment was expected to have a useful life of four years, or 8,000 1. Determine the amount of depreclation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (o) the units-of output method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each method. Note: FOR DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar Depreciation Expense Straight-Line Method Units-of-Output Method Double-Declining-Balance Method Year Year 1 Year 2 Year 3 Year 4 Total 2. What method yields the highest depreciation expense for Year 1 Double-declining-balance method v a. what method yields the most depreciation over the four-year life of the equipment? All three depreciation methods vExplanation / Answer
Solution:
Part 1 --- Calculation of Depreciation Expenses under each method
Depreciation Expense
(Refer working below)
Year
Straight Line Method
Units of Output Method
Double Declining Balance Method
Year 1
$190,000
$285,000
$414,200
Year 2
$190,000
$237,500
$207,100
Year 3
$190,000
$133,000
$103,550
Year 4
$190,000
$104,500
$35,150
Total
$760,000
$760,000
$760,000
Straight Line Depreciation
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 Expense = ($828,400 – 68,400) / 4 = $190,000
Computation of Depreciation (Using Unit of Production Method)
Under the Units of Production method of depreciation, depreciation is charged according to the actual usage of the asset. Higher depreciation is charged when there is higher activity and less is charged when there is low level of operation. Zero depreciation is charged when the asset is idle for the whole period.
Estimated production hours during life of Asset = 8,000 Hours
Asset’s Depreciable Cost = Cost of Asset – Salvage Value = $828,400 - $68,400 = $760,000
Under the units of production method, the Asset’s depreciable cost of $760,000 is divided by estimated production during the life of asset 8,000 Hours, resulting in depreciation rate of $95 per hour ($760,000 / 8,000)
Units of Production Method
Year
Number of Hours Used
Depreciation Rate per hour
Annual Depreciation Expenses
Year 1
3000
$95.00
$285,000
Year 2
2500
$95.00
$237,500
Year 3
1400
$95.00
$133,000
Year 4
1100
$95.00
$104,500
Total
$760,000
Double Declining Depreciation Method
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.
Depreciation Rate = 100% / Useful Life x 2 = 100% / 4 x 2 = 50%
Yearly Depreciation = Carrying Value of Assets x Depreciation Rate
Year
DDB Depreciation for the period
End of Period
Beginning of period book value
Depreciation Rate
Depreciation Expenses
Accumulated Depreciation
Book Value
Year 1
828,400
50%
414,200
414,200
414,200
Year 2
414,200
50%
207,100
621,300
207,100
Year 3
207,100
50%
103,550
724,850
103,550
Year 4
103,550
50%
51,775
35,150
100,000
760,000
51,775
68,400
TOTAL
760,000
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
Depreciation Expense
(Refer working below)
Year
Straight Line Method
Units of Output Method
Double Declining Balance Method
Year 1
$190,000
$285,000
$414,200
Year 2
$190,000
$237,500
$207,100
Year 3
$190,000
$133,000
$103,550
Year 4
$190,000
$104,500
$35,150
Total
$760,000
$760,000
$760,000
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