Question

Instructions Identify each statement as true or false. If false, indicate how to correct the statement E9.5 H tinshaw Company purchased a new machine on October 1, 2014, at a $90,000. The company estimated that the machine has a salvage value of $8,000. The machine is expected to be used for 70,000 working hours during its 8-year life.

Answer 1

Depreciation Expense is as calculated below:

A) Double declining balance

Depreciation through Double-Declining balance method would be calculated by applying a fixed rate to the book value (the declining balance) of machine purchased. Most common fixed rate is equal to twice the straight- line depreciation percentage. In this case estimated useful life is eight years so annual depreciation rate is 12.5 percent (100 percent / 8 years). Under double declining method, fixed rate would be double of depreciation rate which is 25 percent. 25 percent rate will be applied to the carrying value of the machine to calculate depreciation each year.

Double Declining balance depreciation for the year is computed by multiplying double declining balance rate from the book value of the asset.

Depreciation Schedule
Double-Declining-Balance method
	Cost	Annual Dep.		Acc. Dep.	Carrying value
Oct 1, 2014	90,000	-	-	-	90,000
2014	90,000	(25% of 90,000)*3/12	5,625	5,625	84,375
2015	90,000	(25% of 84,375)	21,094	21,094	63,281

b. Units of activity method

Units-of-output Method: Depreciation expense each year will vary with usage. It is calculated by multiplying Depreciable rate with hours machine was used.

Depreciable Cost is the acquiring cost minus the residual value of the asset (if any)

Depreciable Cost is 90,000-8,000= 82,000

Depreciation Schedule
Units of production
	Cost	Annual Dep.		Acc. Dep.	Carrying value
Oct 1, 2014	90,000	-	-	-	90,000
2014	90,000	(90,000-8,000)70,000*3,900	4,569	4569	85,431