Problem 9-7A (Part Level Submission) Machine Acquired Cost Salvage Value Useful

Question

Problem 9-7A (Part Level Submission)

Machine

Acquired

Cost

Salvage
Value

Useful Life
(in years)

Depreciation
Method

Problem 9-7A (Part Level Submission)

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.

Machine

Acquired

Cost

Salvage
Value

Useful Life
(in years)

Depreciation
Method

1 Jan. 1, 2012 $133,000 $45,800 8 Straight-line 2 July 1, 2013 85,000 11,800 5 Declining-balance 3 Nov. 1, 2013 82,110 8,510 7 Units-of-activity
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 32,000. Actual hours of use in the first 3 years were: 2013, 690; 2014, 5,970; and 2015, 7,710.

Explanation / Answer

Machine 1 Depreciation method=Straight Line Method 133000-45800/8 10900 2012 10900 2013 10900 2014 10900 2015 10900 Total 43600 Cost 133000 Less: Accumulated Depreciation 45800 Book Value 87200 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) 85000 17000 68000 85000*2*0.2*1/2 yr 2014 68000 27200 40800 68000*2*0.2*1 yr 2015 40800 16320 24480 Total 60520 Cost of machine 85000 Less: Accumulated Depreciation 60520 Book Value 24480 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 82110-8510/32000 2.3 per unit Depreciation 2013 690 2.3 1587 2014 5970 2.3 13731 2015 7710 2.3 17733 33051 Ans Cost of machine 82110 Less: Accumulated Depreciation 33051 Book Value 49059 Machine ! Machine 2 Machine 3 Accumulated Depreciation as on 31 December 2015 43600 60520 33051

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