https t.html et Home Problem 8-2A Depreciation methods LO P1 A machine costing $
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https t.html et Home Problem 8-2A Depreciation methods LO P1 A machine costing $211,800 with a four-year life and an estimated $17000 salvage value is installed in Luther Company's factory on January 1. The factory manager estimates the machine will produce 487000 units of product during its life. It actually produces the following units: 122,100 in 1st year, 123.100 in 2nd year, 120.100 in 3rd year, 131.700 in 4th year. The total number of units produced by the end of year 4 exceeds the original estimate-this difference was not predicted. (The machine must not be depreclated below its estimated salvage value.) Required Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method (Round your per unit depreciation to 2 decimal places. Round your answers to the nearest whole dollar.) Complete this question by entering your answers in the tabs below. Straight Line Production DDB Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Straight depreciationExplanation / Answer
Asset Cost = $211,800
Salvage Value = $ 17,000
Net Depreciable value = Asset Cost - Salvage Value
= $211,800 - 17,000 = $194,800
Life of the Asset (Years) = 4 years
Life of the Asset (Units) = 487,000 units
A. Depreciation under Straight Line Method
Depreciation = (Asset Cost - Salvage Value) / Life of Asset (Number of Years)
= (211,800 - 17,000) / 4 = $487,700 each year
B. Depreciation Under Units of Production Method
Depreciation = (Number of Units Produced / Life of asset (Number of Units)) * (Asset Cost - Salvage Value)
Year 1 = (122,100/487,000)*194,800 = $48,840
Year 2 = (123,100/487,000)*194,800 = $49,240
Year 3 = (120,100/487,000)*194,800 = $48,040
Year 4 = (131,700/491,000)*194,800 = $52,250 subject to Net Ending Book Value, that should be $17,000. Net Ending Book Value using depreciation of $52,680 is $13,430 (211,800 - 198,370).Hence the amount of depreciation in Fourth yera should be reduced by $ 3,570 and would limit to $48,680. Since the actual prodution exceeds the estimated and which can not be predicted in the earlier years. Hence ,the need of adjusting the amount of depreciation arises.
C. Depreciation Under Double Declining Balance Method
Depreciation = (2 * SLM rate of Depreciation) * Opening Book value of the Asset
Year 1 = (2* (48,700/194,800*100)) * (211,800) = $105,900
Year 2 = 50% * (211,800 - 105,900) = 50% * 105,900 = $52,950
Year 3 = 50% (105,900 - 52,950) = 50% * 52,950 = $26,475
Year 4 = 50% (52,950 - 26,475) = 50% * 26,475 = $13,237 subject to, net ending Book value should be $17,000.Net Book Value using depreciation of $13,237 is $ 13,238 (26,475 - 13,237). Hence, the Depreciation should be limit to $9,475 (26,475-17,000).
Particulars Straight Line Method Units Of Production Double Declining Balance Deprecition for Amount ($) Amount ($) Amount ($) Year 1 48,700 48,840 105,900 Year 2 48,700 49,240 52,950 Year 3 48,700 48,040 26,475 Year 4 48,700 48,680 9,475 Total Depreciation 194,800 194,800 194,800Related Questions
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