Question 8 Diamond Company acquired a 60000 machine on Janua

Question 8

Diamond Company acquired a $60,000 machine on January 1, 20X4. The machine is estimated to have a useful life of 4 years, and a residual value of $10,000. For unit depreciation purposes, the machine is expected to produce 500,000 units.
If Diamond Company uses double-declining-balance depreciation, what is the depreciation expense in 20X4?

A.$12,500

B.$16,000

C.$17,500

D.$30,000

Question 9

Diamond Company acquired a $60,000 machine on January 1, 20X4. The machine is estimated to have a useful life of 4 years, and a residual value of $10,000. For unit depreciation purposes, the machine is expected to produce 500,000 units.
If Diamond Company uses unit depreciation, and the company produces 80,000 units in 20X4, what will be Diamond\'s depreciation expense for 20X4?

$5,760

$6,400

$7,200

$8,000

Solution

Purchase value = 60000

Residual value = 10000

Net cost for 4 years = 50000

Hence depreciation rate = 25% per year

Under double decline method:

Year Opening balance Deprn at 50% Balance

0 60000

1 60000 30000 30000

2 30000 15000 15000

3 15000 7500 7500

4 7500 (_2500) 10000

i.e. 2500 credited in 4th year as special adjustment

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Net cost for 500000 units = 60000-10000 = 50000

Hence per unit depreciation = 0.10

Hence for 20x4 for 80000 units depreciation = 80000 (0.10) = 8000

Option D