On January 2nd of 2015 Ironsides Company purchased and installed a new machine t
ID: 2483094 • Letter: O
Question
On January 2nd of 2015 Ironsides Company purchased and installed a new machine that cost $225, 000, had a five - year life, and an estimated $15,000 salvage value. Managment estimated that the machine would produce 210,000 units of product during its life. Actual production of units of product was as follows: year 1, 33,600; year 2, 54,800; year 3, 48,000; year 4, 45,600; and year 5, 30,000.
Determine the depreciation expense for 2015 and 2016 under (1) straight-line, (2) units of production, (3) sum-of-the-years digits, and (4) declining balance -- at twice the straight-line rate.
Explanation / Answer
Under Straight line method
Depreciation = Original cost - salvage value / no of years
= 225000 - 15000 / 5 = 42000 for each year in 2015 and 2016
Under units of production method
Deprciation = units produced in that year / Total expected units produced * ( Original cost - salvage value)
2015 = 33600 / 212000 * (225000 - 15000)
= 33283
2016 = 54800 / 212000 * (225000 -15000 )
= 54283
Under sum of digit method
No of years of remaining useful life / SYD * ( Origina cost - Salvage value)
SYD = n(n+1)/2
=5 (5+1)/2 = 15
2015 = 5/15 *(225000 -15000 )
= 33% of 210000 = 69300
2016 = 4/15 * (225000 - 15000)
= 26.66 % of 210000
= 56000
Under Declining method
Depreciation = 2 / Useful life * ( Balance at beginnng of year)
2015 = 2 / 5 * (225000 - 15000)
= 40% of 210000
= 84000
2016 = 2/5 * ( 225000 - 84000 )
= 56400
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