Question

8) Chervinski Industries recently paid $460,000 to buy a building that has an estimated useful life of 40 years and a residual value of $116,000. Calculate the depreciation expense for the third year after acquisition using double-declining-balance depreciation. Assume a full year of depreciation in the first year. 9) 9) Dersch Co, purchased a machine on January 1, 2014, for $1,500,000. Using the table below, calculate the annual depreciation expense for each year of the machine's life (estimated at 5 years or 50.000 hours with a residual value of $150,000). During the machine's life it was used 15,000: 14,000 10,000: 9,000 and 6,000 hours. Straight Line Units of Production Declining Balance Year 2014 2015 2016 2017 2018 Civat Goose tor for 10)

Answer 1

8)Depreciation Rate = 2 /useful life

                                  = 2/40

                                  = .05 or 5%

Year	Depreciation expense	Book value at end
0		460000
1	460000*5%= 23000	460000-23000= 437000
2	437000*5%= 21850	437000-21850= 415150
3	415150*5%= 20757.5	415150-20757.5 = 394392.5

Depreciation expense for year3 : 20757.5 (rounded to 20758 )

9)Units of production:

Depreciation rate per hour = [cost -residual value ]/useful life

                     = [1500000-150000]/50000

                     = $ 27 per hour

year	Actual hours	Depreciation expense
2014	15000	27*15000= 405000
2015	14000	27*14000= 378000
2016	10000	27*10000=270000
2017	9000	27*9000= 243000
2018	6000	54000**                   (Balancing figure)
Total	54000	1350000

Since actual hours is greater than estimated hours of 50000 ,Such that depreciation for year 5 will be restricted .

Total depreciation over the life should be equals to or should not exceed " cost -residual value"

                                  = 1500000 -150000

                                 = 1350000

such that book value at end is equal to salvage value

b)Straight line method :[cost -residual value ]/useful life in years

               = [1500000-150000]/5

              = 270000

year	Depreciation expense
2014	270000
2015	270000
2016	270000
2017	270000
2018	270000
Total	1350000

c)

Double declining method:

Depreciation rate = 2/useful life

                     = 2/5

                      = .40 or 40%

Year	Depreciation expense	Book value at end
0		1500000
2014	1500000*.40= 600000	1500000-600000= 900000
2015	900000*.40= 360000	900000-360000= 540000
2016	540000*.40 = 216000	540000-216000= 324000
2017	324000*.40= 129600	324000-129600=194400
2018	44400	150000
Total

Note:

Depreciation expense for 2018 = 194400*40%= 77760 which makes book value at end = 194400-77760 = 116640 which is below the minimum salvage value of $ 150000 .thus it means depreciation for year 2018 needs to be restricted such that book value at end is equals to salvage value.so depreciation expense for 2018 =Book value at 2017 - book value at 2018

         194400 -150000 = 44400