On January 1, 2012, a machine was purchased for $170,100. The machine has an est
ID: 2499456 • Letter: O
Question
On January 1, 2012, a machine was purchased for $170,100. The machine has an estimated salvage value of $11,340 and an estimated useful life of 5 years. The machine can operate for 189,000 hours before it needs to be replaced. The company closed its books on December 31 and operates the machine as follows: 2012, 37,800 hrs; 2013, 47,250 hrs; 2014, 28,350 hrs; 2015, 56,700 hrs; 2016, 18,900 hrs.
Assume a fiscal year-end of September 30. Compute the annual depreciation charges over the asset’s life applying each of the following methods. (Round answers to 0 decimal places, e.g. 45,892.)
Year
Straight-line Method
Sum-of-the-years'-digits method
Double-declining-balance method
Year
Straight-line Method
Sum-of-the-years'-digits method
Double-declining-balance method
2012$
$
$
2013 2014 2015 2016 2017Explanation / Answer
Working note:
Depreciation under Straight line method = Cost of machine – Salvage value/Life of the asset
2012:
= $170,100 - $11,340/5 years * 9/12 months (From Jan. to Sep.)
= $158,760/5 years *9/12 months
= $23,814
2013:
= $170,100 - $11,340/5 years (Full year)
= $31,752
Note: Under straight line method, depreciation for each full year is same so each year’s depreciation under straight line method is $31,752.
Depreciation under sun-of-the-years’-digits method:
Total useful life = 6 years
Sum of the years = 6 + 5 + 4 + 3 + 2 + 1
= 21
Depreciable asset = Cost of the machine - Salvage value
= $170,100 - $11,340
= $158,760
Year
Depreciable asset (a) ($)
Depreciable factor (b)
Depreciation per year ($) ( c = a*b)
2012
158,760
6/21
45,360
2013
158,760
5/21
37,800
2014
158,760
4/21
30,240
2015
158,760
3/21
22,680
2016
158,760
2/21
15,120
2017
158,760
1/21
7,560
Total
158,760
Double declining balance method:
Straight line depreciation rate = 1/Useful life
= 1/6 years
= 16.666667%
Double declining rate = 16.67%*2
= 33.3333333%
Year
Depreciable asset ($) (a)
Depreciation factor (b)
Depreciation per year (c = a*b)
Remaining asset value ($) (d = a-c)
2012
170,100
0.333333
56700
113,400
2013
113,423
0.333333
37808
75,615
2014
75,630.46
0.333333
25210
50,420
2015
50,430.39
0.333333
16810
33,620
2016
33,626.98
0.333333
11209
22,418
2017
22,422.47
0.333333
7474
14,948
Year Depreciation under Straight line method Sum-of-year's-digits method Double declining balance method 2012 23,814 45,360 56,700 2013 31,752 37,800 37,808 2014 31,752 30,240 25,210 2015 31,752 22,680 16,810 2016 31,752 15,120 11,209 2017 31,752 7,560 7,474Related Questions
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