Jon Seceda Furnace Corp. purchased machinery for $315,000 on May 1, 2014. It is
ID: 2457157 • Letter: J
Question
Jon Seceda Furnace Corp. purchased machinery for $315,000 on May 1, 2014. It is estimated that it will have a useful life of 10 years, salvage value of $15,000, production of 240,000 units, and working hours of 25,000. During 2015, Seceda Corp. uses the machinery for 2,650 hours, and the machinery produces 25,500 units.
From the information given, compute the depreciation charge for 2015 under each of the following methods. (Round answers to 0 decimal places, e.g. 45,892.)
$
(b) Units-of-output$
(c) Working hours$
(d) Sum-of-the-years'-digits$
(e) Declining-balance (use 20% as the annual rate)$
Explanation / Answer
Computation of depreciation for the year 2015
a. Straight line = Cost of the asset - scrap value / useful life of the asset
= 315000 - 15000 / 10 = 30000
Depreciation charged during the year 2015 is 30000.
b. Units of output method = Cost of the asset - scrap value / total units of output
= 315000 - 15000 / 240000 = 1.25
Depreciation = 25500 * 1.25 = 31875.
c.Working hours method = Cost of asset - scrap value / total working hours
= 315000 - 15000 / 25000 = 12
Depreciation = 2650*12 = 31800
d. Sum of the years digit method :
Sum of yearsof digits = 1+2 =3(3+1) / 2 = 6
Depreciation base = 315000 - 15000 = 300000
Depreciation expense in 2015 = 300000 * 1 / 6 = 50000
e. Declinig balance method:
depreciation during 2014 = 315000 - 15000 = 300000 * 20% = 60000
depreciation during 2015 = 255000 * 20% = 51000.
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