On January 1, 2012, a machine was purchased for $180,000. The machine has an est

Question

On January 1, 2012, a machine was purchased for $180,000. The machine has an estimated salvage value of $12,000 and an estimated useful life of 5 years. The machine can operate for 200,000 hours before it needs to be replaced. The company closed its books on December 31 and operates the machine as follows: 2012, 40,000 hrs; 2013, 50,000 hrs; 2014, 30,000 hrs; 2015, 60,000 hrs; 2016, 20,000 hrs.

Compute the annual depreciation charges over the machine’s life assuming a December 31 year-end for each of the following depreciation methods. (Round answers to 0 decimal places, e.g. 45,892.)

On January 1, 2012, a machine was purchased for $180,000. The machine has an estimated salvage value of $12,000 and an estimated useful life of 5 years. The machine can operate for 200,000 hours before it needs to be replaced. The company closed its books on December 31 and operates the machine as follows: 2012, 40,000 hrs; 2013, 50,000 hrs; 2014, 30,000 hrs; 2015, 60,000 hrs; 2016, 20,000 hrs.

Compute the annual depreciation charges over the machine’s life assuming a December 31 year-end for each of the following depreciation methods. (Round answers to 0 decimal places, e.g. 45,892.)

Explanation / Answer

1./ STRAIGHT LINE METHOD

PURCHASE PRICE OF MACHINE=$180000

LESS SALVAGE VALUE =($12000)

DEPRICIABLE VALUE =$168000

DEPRICIATION PER YEAR($168000 / 5YEARS)=$33600

2./ACTIVITY METHOD-

PURCHASE PRICE OF MACHINE=$180000

LESS SALVAGE VALUE =($12000)

DEPRICIABLE VALUE =$168000

DEPRICIATION FOR YEAR2012 (40000HOUR / 200000 HOUR * $168000)=$33600

DEPRICIATION FOR YEAR2013 (50000HOUR / 200000 HOUR * $168000)=$42000

DEPRICIATION FOR YEAR2014 (30000HOUR / 200000 HOUR * $168000)=$25200

DEPRICIATION FOR YEAR2015 (60000HOUR / 200000 HOUR * $168000)=$50400

DEPRICIATION FOR YEAR2016 (20000HOUR / 200000 HOUR * $168000)=$16800

3./SUM OF YEARS DIGITS METHOD-

PURCHASE PRICE OF MACHINE=$180000

LESS SALVAGE VALUE =($12000)

DEPRICIABLE VALUE =$168000

SUM OF YEARS DIGITS= N(N+1) / 2

N= NUMBER OF USEFULL LIFE

SUM OF YEARS DIGITS= 5(5+1)/2

=15

DEPRICIATION UNDER SUM OF YEARS DIGITS METHOD= NO. OF YEAR REMAINING AT BEGINING / SUM OF YEARS DIGITS * DEPRICIABLE VALUE

DEPRICIATION FOR YEAR2012 (5/15 * $168000)=$56000

DEPRICIATION FOR YEAR2013 (4 / 15 * $168000)=$44800

DEPRICIATION FOR YEAR2014 (3 / 15 * $168000)=$33600

DEPRICIATION FOR YEAR2015 (2 / 15 * $168000)=$22400

DEPRICIATION FOR YEAR2016 (1 / 15 * $168000)=$11200

4./DOUBLE DECLINNING BALANCE METHOD-

PURCHASE PRICE OF MACHINE=$180000

LESS SALVAGE VALUE =($12000)

DEPRICIABLE VALUE =$168000

DEPRICIATION PERCENTAGE UNDER STRAIGHT LINE METHOD=100%/5YEAR=20%

SO IN DOUBLE DECLINNING METHOD THE DEPRICIATION RATE WILL BE 20%*2=40%

40% RATE WILL BE APPLIED TO THE WRITTEN DOWN VALUE (WDV) AT THE BEGINNING OF THE YEAR.

YEAR     WDV AT BEGINNING   DEPRICIATION   WDV AT END

2012 $168000 $67200 $100800

2013 $100800 $40320 $60480

2014 $60480 $24192 $36288

2015 $36288 $14515 $21773

2016 $21773 $8709 $13064

ASSUMING THE FISCAL YEAR END SEPTEMBER 30-

STRAIGHT LINE METHOD-

PURCHASE PRICE OF MACHINE=$180000

LESS SALVAGE VALUE =($12000)

DEPRICIABLE VALUE =$168000

DEPRICIATION FOR THE YEAR 2012(I;E 9 MONTHS) [($168000/5) /12 *9MONTH]=$25200

DEPRICIATION FOR THE YEAR 2013 ($168000 /5) =$33600

DEPRICIATION FOR THE YEAR 2014 ($168000 /5) =$33600

DEPRICIATION FOR THE YEAR 2015 ($168000 /5) =$33600

DEPRICIATION FOR THE YEAR 2016 ($168000 /5) =$33600

DEPRICIATION FOR THE YEAR 2017(I;E 3 MONTHS) [($168000/5) /12 *3MONTH]=$8400

SUM OF YEARS DIGITS METHOD-

SUM OF YEARS DIGITS METHOD-

PURCHASE PRICE OF MACHINE=$180000

LESS SALVAGE VALUE =($12000)

DEPRICIABLE VALUE =$168000

SUM OF YEARS DIGITS= N(N+1) / 2

N= NUMBER OF USEFULL LIFE

SUM OF YEARS DIGITS= 5(5+1)/2

=15

DEPRICIATION UNDER SUM OF YEARS DIGITS METHOD= NO. OF YEAR REMAINING AT BEGINING / SUM OF YEARS DIGITS * DEPRICIABLE VALUE

DEPRICIATION FOR YEAR2012 I;E 9MONTHS [ (5/15 * $168000) /12 *9MONTHS=$42000

DEPRICIATION FOR YEAR2013 (4.25 / 15 * $168000)=$47600

DEPRICIATION FOR YEAR2014 (3.25 / 15 * $168000)=$36400

DEPRICIATION FOR YEAR2015 (2.25 / 15 * $168000)=$25200

DEPRICIATION FOR YEAR2016 (1.25 / 15 * $168000)=$14000

DEPRICIATION FOR YEAR2017 (0.25 / 15 * $168000)=$2800

DOUBLE DECLINNING BALNCE METHOD-

PURCHASE PRICE OF MACHINE=$180000

LESS SALVAGE VALUE =($12000)

DEPRICIABLE VALUE =$168000

DEPRICIATION PERCENTAGE UNDER STRAIGHT LINE METHOD=100%/5YEAR=20%

SO IN DOUBLE DECLINNING METHOD THE DEPRICIATION RATE WILL BE 20%*2=40%

40% RATE WILL BE APPLIED TO THE WRITTEN DOWN VALUE (WDV) AT THE BEGINNING OF THE YEAR.

YEAR     WDV AT BEGINNING   DEPRICIATION@40%   WDV AT END

2012 $168000 $50400 (9MONTHS) $117600

2013 $117600 $47040 $70560

2014 $70560 $28224 $42336

2015 $42336 $16934 $25402

2016 $25402 $10161 $15241

2017 $15241 $1524 (3MONTHS) $13717

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