Calculation of depreciation; three methods) On January 1, 2016, SugarBear Compan
ID: 2546591 • Letter: C
Question
Calculation of depreciation; three methods)
On January 1, 2016, SugarBear Company acquired equipment costing $150,000, which will be depreciated on the assumption that the equipment will be useful for five years and have a residual value of $12,000. The esti- mated output from this equipment is as follows: 2016—15,000 units; 2017—24,000 units; 2018—30,000 units; 2019—28,000 units; 2020—18,000 units. The company is now considering possible methods of depreciation for this asset.
Required:
a. Calculate what the depreciation expense would be for each year of the asset’s life, if the company chooses:
i. The straight-line method
ii. The units-of-production method
iii. The double-diminishing-balance method
b. Briefly discuss the criteria that a company should consider when selecting a depreciation method.
Explanation / Answer
Given Information: Cost 150000 Year Units Useful Life 5 2016 15000 Residual Value 12000 2017 24000 2018 30000 2019 28000 15000 2020 18000 Total 115000 A SLM: Cost 150000 Residual Value 12000 Depreciable Value 138000 Useful Life 5 Depreciation PA 27600 Year 2016 2017 2018 2019 2020 Total Depreciation PA 27600 27600 27600 27600 27600 138000 B Units of Production Method: Cost 150000 Residual Value 12000 Depreciable Value 138000 Total Units 115000 Dep Per Unit 1.20 Year 2016 2017 2018 2019 2020 Total Depreciation PA 18000 28800 36000 33600 21600 138000 (Units* Dep PU) C Useful Life 5 Rate of Deprecition 1/Life Cost 150000 Rate of Deprecition 20% Residual Value 12000 Double Rate 40% Depreciable Value 138000 (Opening Bal*40%) Year Opening Bal Depreciation Closing Bal Accum Dep 2016 150000 60000 90000 60000 2017 90000 36000 54000 96000 2018 54000 21600 32400 117600 2019 32400 12960 19440 130560 2020* 19440 7440 12000 138000 Total 138000 * Dep Limited to Dep Value Criteria to Choose Depreciation Method: 1 Consider Whether you will use an asset an equal amount each year 2 Determine if an asset generates a measureable quality of output each period In Units 3 Decide whether the asset will be used more in the beg years
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.