Mountainview Resorts purchased equipment for $32,000. Residual value at the end

Question

Mountainview Resorts purchased equipment for $32,000. Residual value at the end of an estimated four- year service life is expected to be $6,500. The machine operated for 1,900 hours in the first year and the company expects the machine to operate for a total of 9,000 hours over its four year life. Calculate depreciation expense for the first year using each of the following depreciation methods: (1) straight-line, (2) double-declining-balance, and (3) activity-based. (Round your intermediate calculations to 2 decimal places.)

Explanation / Answer

Depreciation for the First Year

Straight line :

Depreciation p.a = Cost of Asset- Salvage Value/ Life of Asset

                          = $32,000-$6,500/4

                          =$6,375 ( per annum and first is same

Double Decline balance:

                              

Straight line depreciation%= ¼ years= 25%

                 % under double decline= 2 x straight line depreciation %= 2 x 25=50%

Depreciation per first year= $32,000 x 50%= $16,0000

Activity based depreciation per hr = Cost of Asset- Salvage Value/Expected total no of hrs

                                                            =$32,000-$6,500/9,000 hrs

                                                            = $ 2.833 per hr

Depreciation per first year= $2.833 x 1,900 hrs worked= $5,383

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