(Depreciation for Partial Periods–SL, Act., SYD, and DDB) The cost of equipment
ID: 2435148 • Letter: #
Question
(Depreciation for Partial Periods–SL, Act., SYD, and DDB)The cost of equipment purchased by Charleston, Inc., on June 1, 2010 is $89,000. It is estimated that the machine will have a $5,000 salvage value at the end of its service life. Its service life is estimated at 7 years; its total working hours are estimated at 42,000 and its total production is estimated at 525,000 units. During 2010 the machine was operated 6,000 hours and produced 55,000 units. During 2011 the machine was operated 5,500 hours and produced 48,000 units.
Compute depreciation expense on the machine for the year ending December 31, 2010, and the year ending December 31, 2011, using the following methods. (Round all answers to 0 decimal places, i.e. 10,510.)
sraight-line.
2010 $
2011 $
units of output
2010 $
2011 $
working hours
2010 $
2011 $
Explanation / Answer
The straight method of calculating depreciation is
SLD = (Cost of the asset - Salvage value)/ Estimated useful life of the asset
In 2010: SLD = ($89,000 - $5,000) / 7
= $12,000
The Depreciation expense based in units of output is calculated as:
In 2010:
Depreciaiton expense = (Cost of the asset - Salvage value) / Units of output
= ($89,000 - $5,000) / 55,000
= $1.53
Annual depreciation expense = Units produced * unit depreciation
= 525,000 * $1.53
= $803,250
In 2011:
Depreciation expense = $84,000 / 48,000
= $1.75
Annual depreciation expense = Units produced * Unit depreciaiton
= 525,000 * $1.75
= $918,750
The depreciaiton expense based on hours is calculated as:
Depreciation expense = (Cost of the asset - Salvage value) / Number of hours
In 2010:
Depreciation expense = $84,000 / 6,000
= $14
Annual depreciation expense = Total hours * unit depreciation
= 42,000 * $14
= $588,000
In 2011:
Depreciation expense = $84,000 / 5,500
= $15.27
Annual depreaition expense = 42,000 * $15.27
= $641,340
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