University Car Wash built a deluxe car wash across the street from campus. The n

Question

University Car Wash built a deluxe car wash across the street from campus. The new machines cost $264,000 including installation. The company estimates that the equipment will have a residual value of $25,500. University Car Wash also estimates it will use the machine for six years or about 12,500 total hours. Actual use per year was as follows: Year Hours Used 1 2,900 2 1,300 3 1,400 4 2,600 5 2,400 6 1,900

Prepare a depreciation schedule for six years using the activity-based method

Prepare a depreciation schedule for six years using the activity-based method

Explanation / Answer

(Cost less Estimated Residual Value)* Hours this year

Computation of Depreciation Schedule for six years using Activity Based Method of Depreciation (in $) Given Information Cost of New Machines (a) 264000 Estimated Residual Value (b) 25500 Therefore, Depreciable Amount ( a-b) 238500 Estimated Useful Life 6 years Productive life in hours 12500 hours Actual Productive hous of 1st year 2900 Actual Productive hous of 2nd year 1300 Actual Productive hous of 3rd year 1400 Actual Productive hous of 4th year 2600 Actual Productive hous of 5th year 2400 Actual Productive hous of 6th year 1900 Total: 12500 Depreciation Charge under Activity Based Method=

(Cost less Estimated Residual Value)* Hours this year

Total estimated hours Using the above formulae , depreciation charge for; 1st year = 238500 * 2900 / 12500 55332 2nd year = 238500 * 1300 / 12500 24804 3rd year = 238500 * 1400 / 12500 26712 4th year = 238500 * 2600/ 12500 49608 5th year = 238500 * 2400 / 12500 45792 6th year = 238500 * 1900 / 12500 36252 TOTAL: 238500

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