Sandhill Co purchased equipment on March 27 2018 at a cost o

Sandhill Co. purchased equipment on March 27, 2018, at a cost of $300,000. Management is contemplating the merits of using the diminishing-balance or units-of-production method of depreciation instead of the straight-line method, which it currently uses for other equipment. The new equipment has an estimated residual value of $4,000 and an estimated useful life of either four years or 80,000 units. Demand for the products produced by the equipment is sporadic so the equipment will be used more in some years than in others. Assume the equipment produces the following number of units each year: 14,000 units in 2018; 20,600 units in 2019; 20,400 units in 2020; 20,000 units in 2021; and 5,000 units in 2022. Sandhill has a December year end.

Prepare separate depreciation schedules for the life of the equipment using: (Round depreciation per unit to 2 decimal places, e.g. 5.28 and final answers to 0 decimal places, e.g. 5,275.)

Straight-line method:

Depreciable Depreciation Accumulated Carrying Expense Depreciation Amount Year Cost 2018 2019 2020 2021 2022 Double-diminishing-balance method: Opening Carrying Depreciation Accumulated Carrying Year Amount Expense Depreciation Amount 2018 2019 2020 2021 2022 Units-of-production method: Depreciation Accumulated Carrying Year Units-of-Production Expense Depreciation Amount 2018 2019 2020 2021 2022

Solution

1 Straight line depreciation = (Cost of asset - salvage value )/ Life of the asset Depreciation expense = (300000-4000) /4 74000 Accumulated depreciation Depreciation expense Book value 01-02-2018 0 300000 12-31-2018 74000*9/12 55,500 55,500 2,44,500 12-31-2019 74000*12/12 74,000 1,29,500 1,70,500 12-31-2020 74000*12/12 74,000 2,03,500 96,500 12-31-2021 74000*12/12 74,000 2,77,500 22,500 12-31-2022 74000*3/12 18500 2,96,000 4,000 2 Double declining method Depreciation rate = [(cost of asset / life of asset ) / cost of asset ] *2 Depreciation rate = [300000/4)/300000] *2 Depreciation rate = 50% Depreciation = written down value * depreciation rate Accumulated depreciation Depreciation expense Book value 01-02-2018 300000 12-31-2018 Depreciation = 300000 * 50% *9/12 112500 1,12,500 1,87,500 12-31-2019 Depreciation = 187500 *50%   = 93,750 2,06,250 93,750 12-31-2020 Depreciation = 93750 *50%   = 46875 2,53,125 46,875 12-31-2021 Depreciation = 46875 *50%   = 23437.5 2,76,563 23,438 12-31-2022 Depreciation = 23437.5 *50%*3/12   = 2930 2,79,492 20,508 3 Units of production method Depreciation per machine hour = (Cost of asset - salvage value )/ total machine hour Depreciation per machine hour = (300000-4,000 )/80,000 Depreciation per item 3.7 Accumulated depreciation Depreciation expense Book value 01-02-2018 300000 12-31-2018 14000*3.7 51800 51,800 2,48,200 12-31-2019 20600*3.7 76220 1,28,020 1,71,980 12-31-2020 20400*3.7 75480 2,03,500 96,500 12-31-2021 20000*3.7 74000 2,77,500 22,500 12-31-2022 5000*3.7 18500 2,96,000 4,000