Comparing Three Depreciation Methods Waylander Costings Comp

Comparing Three Depreciation Methods Waylander Costings Company purchased waterproofing equipment on January 6 for $82 operating hours, and a residual value of $68,400·The equipment was used for 3,000 hours during Year 1, 2,500 hours in Year 2, ?A00 hours in Year 3, and 1,100 hours in Year 4 Required: 8,400. The equipment was expected to have a useful life of four years, or 8,000 1. Determine the amount of depreclation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (o) the units-of output method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each method. Note: FOR DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar Depreciation Expense Straight-Line Method Units-of-Output Method Double-Declining-Balance Method Year Year 1 Year 2 Year 3 Year 4 Total 2. What method yields the highest depreciation expense for Year 1 Double-declining-balance method v a. what method yields the most depreciation over the four-year life of the equipment? All three depreciation methods v

Solution

Solution:

Part 1 --- Calculation of Depreciation Expenses under each method

Depreciation Expense

(Refer working below)

Year

Straight Line Method

Units of Output Method

Double Declining Balance Method

Year 1

$190,000

$285,000

$414,200

Year 2

$190,000

$237,500

$207,100

Year 3

$190,000

$133,000

$103,550

Year 4

$190,000

$104,500

$35,150

Total

$760,000

$760,000

$760,000

Straight Line Depreciation

Straight line method is a method of calculating depreciation of an asset.

Under this method depreciation is calculated by dividing depreciable asset value by estimated useful life.

Depreciable Asset Value = Cost of Asset – Salvage Value

In this method, depreciation for each year remains same.

Mathematically,

Annual Depreciation = (Cost of Asset – Salvage Value) / Useful life

Annual Depreciation Expense = ($828,400 – 68,400) / 4 = $190,000

Computation of Depreciation (Using Unit of Production Method)

Under the Units of Production method of depreciation, depreciation is charged according to the actual usage of the asset. Higher depreciation is charged when there is higher activity and less is charged when there is low level of operation. Zero depreciation is charged when the asset is idle for the whole period.

Estimated production hours during life of Asset = 8,000 Hours

Asset’s Depreciable Cost = Cost of Asset – Salvage Value = $828,400 - $68,400 = $760,000

Under the units of production method, the Asset’s depreciable cost of $760,000 is divided by estimated production during the life of asset 8,000 Hours, resulting in depreciation rate of $95 per hour ($760,000 / 8,000)

Units of Production Method

Year

Number of Hours Used

Depreciation Rate per hour

Annual Depreciation Expenses

Year 1

3000

$95.00

$285,000

Year 2

2500

$95.00

$237,500

Year 3

1400

$95.00

$133,000

Year 4

1100

$95.00

$104,500

Total

$760,000

Double Declining Depreciation Method

It is a method of depreciation used by the companies when they want to quickly depreciate an asset.

The asset will depreciate much faster under this method than straight-line because we double the percentage that would be depreciated each year under straight-line.

Salvage value is not subtracted from Cost of Asset when depreciation is calculated by using this method.

The formula for double declining balance is:

Annual depreciation = Book Value * 100% / life * 2

Calculate the percentage that should be used first.

Depreciation Rate = 100% / Useful Life x 2 = 100% / 4 x 2 = 50%

Yearly Depreciation = Carrying Value of Assets x Depreciation Rate

Year

DDB Depreciation for the period

End of Period

Beginning of period book value

Depreciation Rate

Depreciation Expenses

Accumulated Depreciation

Book Value

Year 1

828,400

50%

414,200

414,200

414,200

Year 2

414,200

50%

207,100

621,300

207,100

Year 3

207,100

50%

103,550

724,850

103,550

Year 4

103,550

50%

51,775

35,150

100,000

760,000

51,775

68,400

TOTAL

760,000

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

	Depreciation Expense (Refer working below)
Year	Straight Line Method	Units of Output Method	Double Declining Balance Method
Year 1	$190,000	$285,000	$414,200
Year 2	$190,000	$237,500	$207,100
Year 3	$190,000	$133,000	$103,550
Year 4	$190,000	$104,500	$35,150
Total	$760,000	$760,000	$760,000