In recent years, Farr Company has purchased three machines. Because of frequent

Question

In recent years, Farr Company has purchased three machines. Because of frequent employee turnover in the accounting department, a different accountant was in charge of selecting the depreciation method for each machine, and various methods have been used. Information concerning the machines is summarized in the table below. For the declining-balance method, Farr Company uses the double-declining rate. For the units-of-activity method, total machine hours are expected to be 34,000. Actual hours of use in the first 3 years were: 2013, 660; 2014, 6,240; and 2015, 7,940. Compute the amount of accumulated depreciation on each machine at December 31, 2015.

Explanation / Answer

Machine 1 Depreciation method=Straight Line Method $124000-18000/10 10600 2012 10600 2013 10600 2014 10600 2015 10600 Total 42400 Machine 2 Depreciation method=Double Declining method 200%*Straight Line Depreciation Rate* book value at the beginning of the year Straight Line Depreciation rate= 100%/5= 20% Year Net Book Value at beginning Depreciation 200%*20%*Beginning NBV Net Book Value at the end Calculation of Depriciation 2013 (Half year convention) 92000 18400 73600 92000*2*0.2*1/2 yr 2014 73600 29440 44160 73600*2*0.2*1 yr 2015 44160 17664 26496 Total 65504 Machine 3 Unit of Activity Method Depreciation=Actual No.of units or hours /Total no. of units or expected hours to be produced*(Cost-Salvage value) For accumulated depreciation we can add all the actual hours used in 3 years and than calculate (660+6240+7940)/34000*(89530-7930) 35616 Ans (89530-7930)/34000 2.4 per unit Depreciation 2013 660 2.4 1584 2014 6240 2.4 14976 2015 7940 2.4 19056 35616 Ans Machine ! Machine 2 Machine 3 Accumulated Depreciation as on 31 December 2015 42400 65504 35616

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