EXERCISE 9 Depreciation Methods 1. Straight-line 2. Units-of-production 3. Decli

Question

EXERCISE 9 Depreciation Methods 1. Straight-line 2. Units-of-production 3. Declining-balance On January 1, 2007, equipment was purchased for $280,000 cash. The equipment has an estimated useful life of four years and an estimated residual value of $8,000. The equipment is expected to produce 300,000 units during its useful life. If 20,000, 15,000, 12,000, 8,000units were produced in 2008,2009,2010 and 2011. What is the amount of depreciation expense by Straight-line, Units-of-production and Declining-balance for each year?

Explanation / Answer

under straight line method a asset is depreciated evenly during its useful life

Under straight line method- (cost of the equipment- estimated residual value)/estimated life of the asset

($2,80,000-$8000)/4 years

=$68000 each year

Under units of production method a asset is depreciated on the propotion of number of units that it produced in a particular year year 1 20,000 units $18133

year 2 15,000 units $13600

year 3 12,000 units $10880

year 4 8000 units $7253

so depreciation for year 1 - depreciable cost/total units* units produced

-272000/300000*20,000=18133

-272000/300000*15,000=13600

-272000/300000*12,000=10880

-272000/300000*8,000=7253

Under declining balance method a percentage of straight line depreciation (usually 200%) is used to calcule depreciation of a year.unlike other methods,salvage value is not deducted in this method.

so,2,80,000/ 4 years

70,000 per year (applying 200%)

year 1-1,40,000

year 2-1,40,000

year 3 -nil

year 4 -nil

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