Problem 11-11 On January 1, 2012, a machine was purchased for $216,000. The mach
ID: 2476556 • Letter: P
Question
Problem 11-11
On January 1, 2012, a machine was purchased for $216,000. The machine has an estimated salvage value of $14,400 and an estimated useful life of 5 years. The machine can operate for 240,000 hours before it needs to be replaced. The company closed its books on December 31 and operates the machine as follows: 2012, 48,000 hrs; 2013, 60,000 hrs; 2014, 36,000 hrs; 2015, 72,000 hrs; 2016, 24,000 hrs.
Assume a fiscal year-end of September 30. Compute the annual depreciation charges over the asset’s life applying each of the following methods. (Round answers to 0 decimal places, e.g. 45,892.)
Year
Straight-line Method
Sum-of-the-years'-digits method
Double-declining-balance method
Explanation / Answer
Straight-line Method:
Depreciation P.a =Cost of Asset – Salvage Value/ Life of Asset
=$216,000-$14,400/5
=$40,320
Depreciation per 2012 jan- Sep 2012= 9 months= $40,320 x 9/12=$30,240
Depreciation from – 2012 oct -2016 Sep = $40,320 per year
Depreciation from 2016 oct- 2016 Dec= 3 months= $40,320 x 3/12=$10,080
Straight Line Method
Year
Book Value of Beg yr
Annual Dep
Accu Depr
Ending Book Value
2012
216,000
30,240
30,240
185,760
2013
185,760
40,320
70,560
145,440
2014
145,440
40,320
110,880
105,120
2015
105,120
40,320
151,200
64,800
2016
64,800
40,320
191,520
24,480
2017
24,480
10,080
201,600
14,400
Sum-of-the-years'-digits method:
=n(n+1)/2= 5(5+1)/2=15
Year 1----à (216,000-14,400) x 5/15=$67,200
Year 2----à (216,000-14,400) x 4/15=$53,760
Year 3----à (216,000-14,400) x 3/15=$40,320
Year 4----à (216,000-14,400) x 2/15=$26,880
Year 5----à (216,000-14,400) x 1/15=$13,440
Sum of Digits Method
Year
Book Value of Beg yr
Annual Dep
Accu Depr
Ending Book Value
2012
216,000
50,400
50,400
165,600
2013
165,600
57,120
107,520
108,480
2014
108,480
43,680
151,200
64,800
2015
64,800
30,240
181,440
34,560
2016
34,560
16,800
198,240
17,760
2017
17,760
3,360
201,600
14,400
Computation of Yearly Depreciation:
Year
Total Depreciation
2012
2013
2014
2015
2016
2017
1
$ 67,200
$ 50,400
$ 16,800
2
$ 53,760
$ 40,320
$ 13,440
3
$ 40,320
$ 30,240
$ 10,080
4
$ 26,880
$ 20,160
$ 6,720
5
$ 13,440
$ 10,080
$ 3,360
$ 201,600
$ 50,400
$ 57,120
$ 43,680
$ 30,240
$ 16,800
$ 3,360
Double-declining-balance method;
Dep % under straightline Method= 1/5 years=20%
Dep % under Double-declining-balance Method
= 2 xDep % under straightline Method
=2 x 20%=40%
Double Declining Method
Year
Book Value of Beg yr
Dep Rate
=
Annual Dep
Accu Depr
Book Value
2012
216,000
30
=
64,800
64,800
151,200
2013
151,200
40
=
60,480
125,280
90,720
2014
90,720
40
=
36,288
161,568
54,432
2015
54,432
40
=
22,753
184,321
31,679
2016
31,679
40
=
13,652
197,972
18,028
2017
18,028
10
=
3,628
201,600
14,400
Year
Strightline Method
Sum of Digits Method
Double Decline Method
2012
30,240
50,400
64,800
2013
40,320
57,120
60,480
2014
40,320
43,680
36,288
2015
40,320
30,240
22,753
2016
40,320
16,800
13,652
2017
10,080
3,360
3,628
Total
201,600
201,600
201,600
Straight Line Method
Year
Book Value of Beg yr
Annual Dep
Accu Depr
Ending Book Value
2012
216,000
30,240
30,240
185,760
2013
185,760
40,320
70,560
145,440
2014
145,440
40,320
110,880
105,120
2015
105,120
40,320
151,200
64,800
2016
64,800
40,320
191,520
24,480
2017
24,480
10,080
201,600
14,400