Calculate Depreciation Expense Equipment purchased by Wilder, Inc., on April 1,

Question

Calculate Depreciation Expense

Equipment purchased by Wilder, Inc., on April 1, 2017, cost $240,000. It is estimated that the machine will have a $12,000 salvage value at the end of its service life. Its service life is estimated at 6 years; its total working hours are estimated at 28,500; and its total production is estimated at 380,000 units. During 2017, the machine was operated 3,500 hours and produced 43,000 units. During 2018, the machine was operated 5,200 hours and produced 58,000 units.

Compute depreciation expense on the machine for the year ending December 31, 2017, and the year ending December 31, 2018, using the following methods.

Explanation / Answer

As per units of production method:

Calculation of depreciation for the year ending December 31, 2017:

Depreciation = [Number of total hours/Life in Number of hours] × (Cost Salvage Value)

= [3500/28500]*(240000-12000) = 0.1228*228000 = 27998.40

Calculation of depreciation for the year ending December 31, 2018:

Depreciation = [Number of total hours/Life in Number of hours] × (Cost Salvage Value)

= [5200/28500]*(240000-12000) = 0.18245*228000 = 41598.60

As per stright line depreciation method:

Calculation of depreciation for the year ending December 31, 2017:

Depreciation amount = (Cost price - Salvage value)/Life of assets

= (240000 - 12000)/6 *9/12 = 228000/6 *9/12 = 38000*9/12 = 28500

Calculation of depreciation for the year ending December 31, 2018:

Depreciation amount = (Cost price - Salvage value)/Life of assets

= (240000 - 12000)/6 = 228000/6 = 38000

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