Question

•On Jan 1, ABC Co. purchased a piece of equipment for $280,000, $30,000 salvage value, 4 year useful life. The equipment is estimated to produce 500,000 units over its life. Actual units produced were 125,000; 100,000; 175,000; 100,000 for years 1-4, respectively. Determine depreciation for each year under straight line, units of production, and double declining balance.

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•Part B. At the end of year 3 (prior to recording depreciation expense for that year) ABC Co changed the estimated useful life to 6 years and salvage value to $35,000. What is the updated depreciation expense under straight line?

Answer 1

A В 1Requirement 1 2 a)Straight line method 3 Particulars 4 1.Cost of Equipment 5 2.Salvage value 6 3.Depreciable cost 7 (280000-30000) 8 4.Useful life Amount 2,80,000 30,000 2,50,000 4yrs 5.Depreciation per Annum 62,500 9 10 (250000/4)

A 12 b)Units of production method 13 Particulars 14 1.Cost of Equipment 15 2.Salvage value 16 3.Depreciable cost 17 (280000-30000) 4.Estimated production units 18 over life of equipment Amount $ 2,80,000 30,000 2,50,000 500000 19 5.Depreciation expense per unit| $ 20 (250000/500000) 0.50 21 Depreciation Depreciation Expense( 1*2) 0.5 $ expense per unit( 2) Units( 1) 22 Year 1 125000 62,500 23 100000 0.5 $ 50,000 2 0.5 $ 3 175000 87,500 25 0.5 $ 4 100000 50,000 26

A E 28 c)Double declining method 29 Depreciation rate =1/useful life =1/4 30 25% 31 32 33 Double declining rate 25%*2 50% 34 35 Depreciation Expense(3=1 2) 1,40,000 $ 70,000 Depreciaton Begining value( 1) Rate( 2) Ending value(1-3) 36 Year 50% $ 2,80,000 1,40,000 37 2$ 3$ 50% $ 50% $ 1,40,000 70,000 38 35,000 $ 17,500 $ 70,000 35,000 39 50% $ 4 $ 35,000 17,500 40 1

A В 42 Requirement 2 Revised Depreciation under straight line Amount 43 44 Particulars 45 1.Cost of Equipment 46 2.Depreciation for year 1 47 3.Depreciation for year 2 48 4.Begining value for year 1 49 (280000-62500-62500) 50 5.revised salvage vahue 51 6.Deprecaible cost 52 (155000-35000) 53 7.Revised useful life 2,80,000 62,500 62,500 $ 1,55,000 35000 $ 1,20,000 буrs 4yrs 30,000 54 8.Balance useful life(6yr-2yrs 55 9.Revised Depreciation 56 (120000/4) $ S7