On January 1, 2018, the Allegheny Corporation purchased machinery for $128,000.

Question

On January 1, 2018, the Allegheny Corporation purchased machinery for $128,000. The estimated service life of the machinery is 10 years and the estimated residual value is $7,000. The machine is expected to produce 200,000 units during its life. Required: Calculate depreciation for 2018 and 2019 using each of the following methods. 1. Straight line. 2. Sum-of-the-years'-digits. 3. Double-declining balance. 4. One hundred fifty percent declining balance. 5. Units of production (units produced in 2018, 31,000; units produced in 2019, 26,000).

Explanation / Answer

Calculate depreciation expenses for 2018 and 2019 :

straight line method = Original cost-salvage value/useful life

                             = 128000-7000/10

Straight line method = 12100 per annum

2018 dep = 12100

2019 dep = 12100

2) Sum of year digit method:

Sum of year digit = 10+9+8+7+6+5+4+3+2+1=55

2018 dep = 121000*10/55 = 22000

2019 dep = 121000*9/55 = 19800

3) Doubel decline balance :

Straight line rate = 100/10 = 10%

double decline rate = 10*2=20%

2018 dep = 128000*20% = 25600

2019 dep = (128000-25600)*20% = 20480

4) One hundred fifty percent decline balance :

straight line rate = 100/10 = 10%

decline rate = 10*150% = 15%

2018 dep = 128000*15% = 19200

2019 dep = (128000-19200)*15% = 16320

5) Unit of production :

Dep rate = 128000-7000/200000 = 0.605 per unit

2018 dep = 31000*0.605 = 18755

2019 dep = 26000*0.605 = 15730

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