(1)
Depreciation:
Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life. The following is the formula to calculate the depreciation.
To calculate: The depreciation for 2018 and 2019 using
(1)
Explanation of Solution
Corporation A purchased machinery for $115,000. The estimated service life of the machinery is 10 years and the estimated residual value is $5,000.
Calculate depreciation using straight line method
Straight line method:
Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset.
Hence, depreciation for 2018 and 2019 is $11,000.
(2)
To calculate: The depreciation for 2018 and 2019 using Sum-of-the-years’-digits method.
(2)
Explanation of Solution
Corporation A purchased machinery for $115,000. The estimated service life of the machinery is 10 years and the estimated residual value is $5,000.
Sum-of- the-years’ digits (SYD) method:
Sum-of-the years’ digits method determines the depreciation expense by multiplying the depreciable base and declining fraction.
Where n is estimated life time of the asset.
Calculate depreciation for 2018 and 2019 using Sum-of-the-years’-digits method.
For 2018:
For 2019:
Hence, a depreciation expense for 2018 is $20,000 and for 2019 is $18,000.
(3)
To calculate: The depreciation expenses for 2018 and 2019 using double declining balance method.
(3)
Explanation of Solution
Corporation A purchased machinery for $115,000. The estimated service life of the machinery is 10 years and the estimated residual value is $5,000.
Double declining balance (DDB) method:
In this method of depreciation, the depreciation is calculated by multiply beginning of year book value, not depreciable base, by an annual rate that is a multiple of the straight line rate.
Calculate depreciation expense for 2018 and 2019
For 2018:
For 2019:
Hence, a depreciation expense for 2018 is $23,000 and for 2019 is $18,400.
(4)
To calculate: The depreciation expense for 2018 and 2019 using One hundred fifty percent declining balance.
(4)
Explanation of Solution
Corporation A purchased machinery for $115,000. The estimated service life of the machinery is 10 years and the estimated residual value is $5,000.
One hundred fifty percent declining balance:
In this method of depreciation, the depreciation is calculated by multiply beginning of year book value, not depreciable base, by an annual rate that is a 150% or 1.5 of the straight line rate.
Calculate depreciation for 2018 and 2019.
For 2018:
For 2019:
Hence, a depreciation expense for 2018 is $17,250 and for 2019 is $14,663.
(5)
To calculate: The depreciation expense for 2018 and 2019 using
(5)
Explanation of Solution
Corporation A purchased machinery for $115,000. The estimated service life of the machinery is 10 years and the estimated residual value is $5,000. The machine is expected to produce 220,000 units during its life. During 2018, units produced were 10,000 and during 2019, units produced were 25,000.
Units of production method:
The units’ of-production method is an activity-based method that calculates a depletion or depreciation or amortization rate per measure of activity and then multiplies this rate by actual activity to determine periodic cost allocation.
Calculate depreciation expense for 2018 and 2019:
For 2018:
For 2019:
Hence, a depreciation expense for 2018 is $5,000 and for 2019 is $12,500.
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