Homework Sourse4 of 22 0 c Cost Rate 122018 12312018 Cost SolutionSolution
Solution
Solution:
Mama’s Fried Chicken
Straight Line Depreciation Schedule
Straight line depreciation schedule:
Date
Asset Cost
Depreciation for the year
Depreciable Cost
/
Depreciation Rate
=
Depreciation Expense
Accumulated depreciation
Book Value
1/2/2018
$15,000
$15,000
12/31/2018
$12,000
/
25%
=
$3,000
$3,000
$12,000
12/31/2019
$12,000
/
25%
=
$3,000
$6,000
$9,000
12/31/2020
$12,000
/
25%
=
$3,000
$9,000
$6,000
12/31/2021
$12,000
/
25%
=
$3,000
$12,000
$3,000
Notes –
Asset cost = $15,000
Residual value = $3,000
Depreciable cost = 15,000 – 3,000 = $12,000
Useful life of the asset = 4 years
Depreciation rate = ¼ = 25%
For first year = 15,000 – 3,000 = $12,000
For second year = 15,000 – 6,000 = $9,000
For third year = 15,000 – 9,000 = $6,000
For fourth year = 15,000 – 12,000 = $3,000
Units of production depreciation method:
calculation of depreciation expense per unit -
(Asset Cost
-
residual value)
/
estimated operating hours
=
depreciation per hour
($15000
-
$3,000)
/
3,000 hours
=
$4 per hour
Depreciation schedule - units of production method:
Date
Asset Cost
Depreciation for the year
$15,000
Depreciation per unit (hour)
Number of hours
Depreciation Expense
Accumulated Depreciation
Book Value
1/2/2018
$15,000
$15,000
12/31/2018
$4
300 hours
$1,200
$1,200
$13,800
12/31/2019
$4
900 hours
$3,600
$4,800
$10,200
12/31/2020
$4
1,200 hours
$4,800
$9,600
$5,400
12/31/2021
$4
600 hours
$2,400
$12,000
$3,000
For first year = $4 x 300 hrs = $1,200
Second year = $4 x 900 hrs = $3,600
Third year = $4 x 1,200 hrs = $4,800
Fourth year = $4 x 600 hrs = $2,400
First year = 15,000 – 1,200 = $13,800
Second year = 15,000 – 4,800 = $10,200
Third year = 15,000 – 9,600 = $5,400
Fourth year = 15,000 – 12,000 = $3,000
Depreciation schedule using the double-declining-balance method:
Date
Asset Cost
Depreciation for the year
1/2/2018
$15,000
Book Value
x
DDB Rate
Depreciation Expense
Accumulated Depreciation
Book Value
12/31/2018
$15,000
50%
$7,500
$7,500
$7,500
12/31/2019
$7,500
x
50%
=
$3,750
$11,250
$3,750
12/31/2020
$3,750
=
$750
$12,000
$3,000
12/31/2021
$3,000
$0
$12,000
$3,000
Notes –
First year = 15,000 x 50% = $7,500
Second year = 7,500 x 50% = $3,750
Third year = 3,750 x 50% = 1,875
Though the depreciation expense for Year 3 comes to $1,875, it would make book value to fall below the residual value of $3,000. Hence, the depreciation expense in Year 3 is limited to $750 (3,750 – 3,000 = 750).
Likewise, depreciation expense of year 4 is zero as the asset cannot be depreciated beyond its residual value.
Year 1 = 15,000 – 7,500 = $7,500
Year 2 = 15,000 – 11,250 = $3,750
Year 3 = 15,000 – 12,000 = $3,000
Year 4 15,000 – 12,000 = 3,000
| Straight line depreciation schedule: | ||||||||
| Date | Asset Cost | Depreciation for the year | ||||||
| Depreciable Cost | / | Depreciation Rate | = | Depreciation Expense | Accumulated depreciation | Book Value | ||
| 1/2/2018 | $15,000 | $15,000 | ||||||
| 12/31/2018 | $12,000 | / | 25% | = | $3,000 | $3,000 | $12,000 | |
| 12/31/2019 | $12,000 | / | 25% | = | $3,000 | $6,000 | $9,000 | |
| 12/31/2020 | $12,000 | / | 25% | = | $3,000 | $9,000 | $6,000 | |
| 12/31/2021 | $12,000 | / | 25% | = | $3,000 | $12,000 | $3,000 |
