Nicole\'s Getaway Spa (NGS) purchased a hydrotherapy tub system to add to the we

Question

Nicole's Getaway Spa (NGS) purchased a hydrotherapy tub system to add to the wellness programs at NGS. The machine was purchased at the beginning of the year at a cost of $12,500. The estimated useful life was five years and the residual value was $1,500. Assume that the estimated productive life of the machine is 10,000 hours. Expected annual production was year 1, 2,200 hours; year 2, 2,350 hours; year 3, 2,350 hours; year 4, 2,100 hours; and year 5, 1,000 hours. Complete a depredation schedule for each of the alternative methods. (Do not round intermediate calculations. Round your final answers to the nearest dollar amount.) Straight-line. Units-of-production. Double-declining-balance.

Explanation / Answer

a)

Depreciation as per Straight Line Method = (Purchase Cost - Salvage Value) / Useful life

= (12,500 - 1,500) / 5 = $2,200

b)

Depreciation as per units of production = (Depreciable Cost) / Units produced in lifetime

= ($12,500 - $1,500) / 10,000 = $1.10 per unit.

Depreciation ofr year 1 and likewise other years = $1.10 x 2,200 = $2,420

c) Under double declining balance method, the straight line depreciation rate is doubled and is then applied to book balance at the beginning of every year to calculate the depreciation for that year.

Double declining rate = ( 1/ 5 ) x 2 = 40%.

Year Depreciation Expense Accumulated Depreciation Book Value At Acquisition 12500 Year 1 2200 2200 10300 Year 2 2200 4400 8100 Year 3 2200 6600 5900 Year 4 2200 8800 3700 Year 5 2200 11000 1500

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