Question

Project 01 FACULTY Dean Acct123 Name: _Mustafa Due Tues 02/25 DEPRECIATION METHODS THE COMPUTATION IN THIS PROJECT WILL USE INFORMATION ABOUT A MACHINE THAT INSPECTS GOLF CLUBS PRIOR TO PACKAGING AND SHIPPING THEM TO CUSTOMERS. COST $30,000 SALVAGE VALUE $5,000 USEFUL LIFE 10 YEARS UNITS INSPECTED 45,000 PURCHASE DATE UNITS INSPECTED DEC 31, 2012 YEARS USAGE 2013 THRU 2022 2013 4000, 2014 = 3000, 2015 5000, 2016 = 4000, 2017 - 5000, 2018 - 6000, 2019 5000, 2020 = 6000, 2021 - 4000, 2022 = 3000 SET UP 3 TABLES LIKE EXHIBIT 10.8, 10.10 AND 10.12 ON PAGES 427-430. 10 ROWS IN EACH TABLE FOR EACH YEAR. CACULATE OUT THE DEPRECIATION USING THE STRAIGHT LINE METHOD, UNITS OF PRODUCTION METHOD, AND THE DOUBLE-DECLINING BALANCE METHOD

Answer 1

Straight line method dep:

Cost	30,000
Life	10 years
Salvage value	$5,000
Depreciable value	Cost- Salvage Value
	30000-5000
	$25,000
SL method dep=	Depreciable value/life
	25000/10
	$2,500

Therefore, every year same dep of $2,500 will be charged till the book value reaches salvage value

	Opening cost	SL dep per annum	Closing cost
2013	30,000	2,500	27,500
2014	27,500	2,500	25,000
2015	25,000	2,500	22,500
2016	22,500	2,500	20,000
2017	20,000	2,500	17,500
2018	17,500	2,500	15,000
2019	15,000	2,500	12,500
2020	12,500	2,500	10,000
2021	10,000	2,500	7,500
2022	7,500	2,500	5,000

Double declining balance method

Cost	30,000
Life	10 years
Salvage value	$5,000

Under DDB, dep is charged at double the rate of SL method dep

SL method depreciation rate	1/10
	0.1
	10%
DDB rate	10*2
	20%

Therefore, every year 20% of opening balance of machine will be charged as dep until the book value reaches salvage value.

	Opening cost	Dep percent	Dep expense	Closing cost
2013	30,000	20%	6,000	24,000
2014	24,000	20%	4,800	19,200
2015	19,200	20%	3,840	15,360
2016	15,360	20%	3,072	12,288
2017	12,288	20%	2,458	9,830
2018	9,830	20%	1,966	7,864
2019	7,864	20%	1,573	6,291
2020	6,291	20%	1,258	5,033
2021	5,033	0.66%	33	5,000

In the year 2021, dep expense will be charged only for $33 (salvage value- opening book value) as book value of machine cannot be depreciated beyond salvage value.

Units of production method:

Cost	30,000
Estimated total production	45,000 units
Salvage value	$5,000
Depreciable Value	30000-5000
	$25,000

Under units of production method, dep is charged based on the estimated total production during the life of the machine and units produced every year

Depreciation per unit of production	depreciable value/total units production
	25000/45000
	0.56

Therefore dep per annum= total units produced in that year*per unit dep

	Opening cost	Units produced	Dep per unit	Dep expense	Closing cost
2013	30,000	4000	0.56	2,240	27,760
2014	27,760	3000	0.56	1,680	26,080
2015	26,080	5000	0.56	2,800	23,280
2016	23,280	4000	0.56	2,240	21,040
2017	21,040	5000	0.56	2,800	18,240
2018	18,240	6000	0.56	3,360	14,880
2019	14,880	5000	0.56	2,800	12,080
2020	12,080	6000	0.56	3,360	8,720
2021	8,720	4000	0.56	2,240	6,480
2022	6,480	3000	0.49	1,480	5,000
		45000

In the year 2022, $1,480 (opening book value- salvage value) dep will be charged as an asset cannot be depreciated beyond its salvage value.