On January 1, 2018, the Allegheny Corporation purchased machinery for $150,000.

Question

On January 1, 2018, the Allegheny Corporation purchased machinery for $150,000. The estimated service life of the machinery is 10 years and the estimated residual value is $7,000. The machine is expected to produce 360,000 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, 40,000; units produced in 2019, 35,000).

Explanation / Answer

Calculate depreciation for 2018 and 2019 using each of the following methods.

1. Straight line = (150000-7000)/10 = 14300

2018 Dep = 14300

2019 Dep = 14300

2. Sum of year digit :

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

Depreciable base = (150000-7000)=143000

2018 Dep = (143000*10/55) = 26000

2019 dep = (143000*9/55) = 2340

3. Double declining balance :

Straight line dep rate = 100/10 = 10%

Double decline dep rate = 10*2=20%

2018 dep = 150000*20% = 30000

2019 dep = 150000*80%*20% = 24000

4. One hundred fifty percent declining balance :

Straight line dep rate = 100/10 = 10%

150% Dep rate = 10*150%=15%

2018 dep = 150000*15%=22500

2019 dep = 150000*85%*15% = 19125

5. Unit of production :

Dep rate = 143000/360000 = 0.39 per unit

2018 dep = 40000*.40 = 16000

2019 dep = 35000*.40 = 14000

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