h09 Exam aring three d Depreciation Expense nd atesdaae of 7

h09 Exam aring three d Depreciation Expense nd atesdaae of $7.,500. The equipment was used for 8.950 hours during 2014, 7,D40 hours in 205, and 4.010 hours in ac6 . Determine te amoune of depeciation expanse for the years ended December 31, 2014, 2015 and 2016 by (a) tne segne linmd () he ofouut metho, and s) e nearest whole dollar) Depreciation Expense 23t6 8 3 4 6 9

Solution

Cost of the equipment = $111,500

Useful life in years = 3 years

Useful life in hours = 20,000 operating hours.

Residual life = $7,500

Answer to 1:

Note 1-Calculation of depreciation using Straight Line Method (SLM):

Fomula = (Cost of equipment - Residuary value) / Useful life

*Depreciation for the year 2014 = ($111,500 - $7,500) / 3years = $34,666.66 = $34,667 (rounding off)

**Depreciation for the year 2015 = ($111,500 - $7,500) / 3years = $34,666.66 = $34,667 (rounding off)

***Depreciation for the year 2016 = ($111,500 - $7,500) / 3years = $34,666.66 = $34,666

Note 2 - Calculation of depreciation using Units of Output method:

Depreciation per operating hour = (Cost of the equipment - Residual life) / Total no. of operating hours

= ($111,500 - $7,500) / 20,000 =

= 5.2 per operating hour.

*Depreciation for the year 2014 = Number of operating hours X depreciation per hour = 8,950 X 5.2 = $46,540

** Depreciation for the year 2014 = Number of operating hours X depreciation per hour = 7,040 X 5.2 = $36,608

***Depreciation for the year 2014 = Number of operating hours X depreciation per hour = 4,010 X 5.2 = $20,852

Note 3 -Calculation of depreciation using double declining balance method:

Calculation of SLM rate = 34,667 / (111,500-7,500) = 0.3333 = 33.33%

Answer to 2:

For year 2014, Double declining balance method yields highest depreciation expense i.e $74,326 (option -3 in the question)

Answer to 3

All methods yields the equal total depreciation over the three year life of the equipment.(may be option 4 in the question)

Hope this is useful and thank you!!!!!

Depreciation expense
Year	Straight line method	Units of output method	double declining balance method
2014	$34,667	$46,540	$74,326
2015	$34,667	$36,608	$24,780
2016	$34,666	$20,852	$4,894
Total	$104,000	$104,000	$104,000