Boston Corp purchased equipment with a cost of 70000 at the

Boston Corp. purchased equipment with a cost of $70,000 at the beginning of 2016. The equipment has an estimated life of 25 years or 25,000 units of product. The estimated residual value is $7,500. During 2016, 1,100 units of product were produced with this machinery. Determine the following:

a. Amount of total accumulated depreciation at December 31, 2016, using units-of-production depreciation.

$

b. Book value at the end of 2016 using straight-line depreciation.

$

c. A company may choose units-of-production depreciation instead of straight-line,

Solution

CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD FOR MACHINE Purchase Cost of Machine $                70,000.00 Less: Salvage Value $                  7,500.00 Net Value for Depreciation $                62,500.00 Usefule life of the Assets 25 years Depreciation per year = Value for Depreciation / 25 years =                      2,500.00 Total Depreciation for the year 2016 = $                  2,500.00 CALCULATION OF THE DEPRECIATION AS PER UNITS OF PRODUCTION Purchase Cost of Machine $                70,000.00 Less: Salvage Value $                  7,500.00 Net Value for Depreciation $                62,500.00 Expected to production in Units                    25,000.00 Units Depreciation per Hours =                               2.50 Per Units ($ 84,000 / 525,000 Units) Depreciation for Year 2016 = (1100 units * $ 2.50) $                  2,750.00 Answer = a) = Total Depreciation as per unit of production =                      2,750.00 Answer = b) Purchase value of the assets =                    70,000.00 Less: depreciation as per SLM                      2,500.00 Book Value at the end of the year 2016 =                    67,500.00 Answer = c) Yes the company may choose units of production because the depreciation of the year is higher in this when the depreciation is higher than there is saving of income tax