P112 Depreciation for Partial PeriodsSL Act SYD and Declinin

P11-2 (Depreciation for Partial Periods-SL, Act., SYD, and Declining-Balance) The cost of equipment purchased by Charleston, Inc., on June 1, 2014, is $89,000. It is estimated that the machine will have a $5,000 salvage value at the end of its service life. Its service life is estimated at 7 years, its total working hours are estimated at 42,000, and its total production is estimated at 525,000 units. During 2014, the machine was operated 6,000 hours and produced 55,000 units. During 2015, the machine was operated 5,500 hours and produced 48,000 units/ Instructions Compute depreciation expense on the machine for the year ending December 31,2014, and the year ending December 31, 2015, using the following methods. (a) Straight-line. (b) Units-of-output. (c) Working hours. (d) Sum-of-the-years\'-digits. (e) Declining-balance (twice the straight-line rate).

Solution

CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD FOR MACHINE Purchase Cost of Machine $                89,000.00 Less: Salvage Value $                  5,000.00 Net Value for Depreciation $                84,000.00 Usefule life of the Assets 7 years Depreciation per year = Value for Depreciation / 7 years =                    12,000.00 Total Depreciation for the year 2014 = $ 12,000/2 = $                  6,000.00 Total Depreciation for the year 2015 = $                12,000.00 CALCULATION OF THE DEPRECIATION AS PER UNITS OF PRODUCTION Purchase Cost of Machine $                89,000.00 Less: Salvage Value $                  5,000.00 Net Value for Depreciation $                84,000.00 Expected to production in Units                5,25,000.00 Units Depreciation per Hours =                               0.16 Per Units ($ 84,000 / 525,000 Units) Depreciation for Year 2014 = (55,000 units * $ 0.16) $                  8,800.00 Depreciation for Year 2015 = (48,000 units * $ 0.16)                      7,680.00 CALCULATION OF THE DEPRECIATION AS PER TOTAL WORKING HOURS Purchase Cost of Machine $                89,000.00 Less: Salvage Value $                  5,000.00 Net Value for Depreciation $                84,000.00 Expected to production in hours =                    42,000.00 Hours Depreciation per Hours =                            2.000 Per Hours ($ 84,000 / 42,000 Units) Depreciation for Year 2014 = 6000 Hrs X $ 2 = $                12,000.00 Depreciation for Year 2015 = 5500 Hrs X $ 2 =                    11,000.00 CALCULATION OF THE DEPRECIATION AS PER SUM OF DIGITS METHOD Purchase Cost of Machine $                89,000.00 Less: Salvage Value $                  5,000.00 Net Value for Depreciation $                84,000.00 SUM OF DIGITS = 1+2+3+4+5+6+7 =28 For the year 2014 & 2015 we can use 7 & 6 number Depreciation for the year So depreciation for the year 2014 = ($ 84,000 /28)*7/2 = $                11,307.69 (total Dereciation is charged only 6 month ) So depreciation for the year 2015 = ($ 84,000 /28)*7/2 = $                11,307.69 So depreciation for the year 2015 = ($ 84,000 /28)*6/2 = $                  9,000.00 CALCULATION OF THE DEPRECIATION AS PER DOUBLE DECLINE METHOD Purchase Cost of Machine $                89,000.00 Useful Life = 7 years Depreciation per year = $                12,714.29 (Purchase price / Useful life) Rate of Depreciation = Rate of Depreciation = (1 / 7 Years ) 0.1429 or 14.29% (Depreication / Purchase price ) Double decline deprection rate = 14.29% X 2 = 28.58% Depreciation for the year 1 = Purchase Value =                    89,000.00 Depreciation for the year 2014= 28.58/2% =14.29%                          12,718 Closing value                          76,282 Opening Balance                    76,281.90 Depreciation for the year 2015= 28.58/2 =                          21,801