ABC Company purchased a new machine on January 2, 2014, that was built to perfor
ID: 2329226 • Letter: A
Question
ABC Company purchased a new machine on January 2, 2014, that was built to perform one function on its assembly line. Data pertaining to this machine are 4. Acquisition cost Residual value Estimated service life Years Service hours Production output $330,000 $30,000 250,000 300,000 Using each of the following methods, compute the annual depreciation (1) Straight-line (3) Unit of Activities in Productive-output (assume 31,000 units for 2014 and (4) Double Declining Balance nd charge for the years ended December 31, 2014, and 2015: 2) Unit of Activities in Service hours (assume 32,000 hours for 2014 and 36,000 hours for 2015) 37,000 units for 2015)Explanation / Answer
1 Straight line depreciation = (Cost of asset - salvage value )/ Life of the asset Depreciation expense = (330000-30000) /5 60000 Accumulated depreciation Depreciation expense Book value 0 330000 2014 60000*12/12 60,000 60,000 2,70,000 2015 60000*12/12 60,000 1,20,000 2,10,000 2 Double declining method Depreciation rate = [(cost of asset / life of asset ) / cost of asset ] *2 Depreciation rate = [330,000/5)/330,000] *2 Depreciation rate = 40% Depreciation = written down value * depreciation rate Accumulated depreciation Depreciation expense Book value 330000 2014 Depreciation = 330000*40% 132000 1,32,000 1,98,000 2015 Depreciation = 198000*40% 79,200 2,11,200 1,18,800 3 Units of production method Depreciation per service hour = (Cost of asset - salvage value )/ total service hour Depreciation per service hour = (330000-30000)/250000 Depreciation per item 1.20 Accumulated depreciation Depreciation expense Book value 330000 2014 1.20*32000 38400 38,400 2,91,600 2015 1.20*36000 43200 81,600 2,48,400 4 Units of production method Depreciation per production output = (Cost of asset - salvage value )/ total production output Depreciation per production output = (330000-30000)/300000 Depreciation per item 1.00 Accumulated depreciation Depreciation expense Book value 330000 2014 1.00*31000 31000 31,000 2,99,000 2015 1.00*37000 37000 68,000 2,62,000