how to do steps 1 2 and 3 PR 92A Comparing three depreciatio

how to do steps 1 2 and 3

PR 9-2A Comparing three depreciation methods Obj, 2 1. a. Year 1: straight- Dexter Industries purchased packaging equipment on January 8 for $72.000. The eomi line depreciation, was expected to have a useful life of three years, or 18,000 operating hours, and reidin $22,500 value of $4500. The equipment was used for 7,600 hours during Year 1,6,000 hours in Year 2 and 4,400 hours in Year 3. Instructions SHW ME NOW EXCEL TEMPLATE 1. Determine the amount of depreciation expense for the three years ending December 31, by (A) the straight-line method, (B) the units-of-activity method, and (C) the double-decining balance method. Also determine the total depreciation expense for the three years by each (Continued)

Solution

Year

Straight line Method      ( note 1)

Units of Activity( note2)

Double Declining Balance( note 3)

1

$ 22,500

$ 28,500

$ 48,000

2

$ 22,500

$ 22,500

$ 16,000

3

$ 22,500

$ 16,500

$ 3,500

TOTAL

$ 67,500

$ 67,500

$ 67,500

Working Note 1:Depreciation as per straight line method

                             Cost of Equipment purchased= $ 72,000

                               Useful life of Asset= 3years

                              Residual Value of the asset=$ 4,500

              Depreciation per annum= (Cost- Residual Value)/ useful life

                                             =( $72,000-$4,500)/ 3= $ 22,500

Working Note 2: Depreciation as per units of Activity Method

                                  Depreciation/operating hour=(Cost-Residual value)/operating hours

                                                                      = ($72,000-$4,500)/18,000 hours

                                                                      =$ 3.75/hour

                             Depreciation for Year1= $3.75* 7,600= $ 28,500

                             Depreciation for Year2=$ 3.75*6000= $ 22,500

                            Depreciation for Year3=$ 3.75* 4400= $ 16,500

Working Note 3:Depreciation as per double declining method

         Depreciation Rate=2*1/3=0.66666 i.e =66.67 %

Depreciation= Depreciation percent* Book value of asset at the beginning of the accounting period

Depreciation for Year1= $ 72,000* 0,6667=$ 48,000

Depreciation for Year2=$(72,000-48,000)*0.6667= $ 16,000

Depreciation for Year3= Is taken as $3,500 to keep the book value same as the residual value.

Year	Straight line Method      ( note 1)	Units of Activity( note2)	Double Declining Balance( note 3)
1	$ 22,500	$ 28,500	$ 48,000
2	$ 22,500	$ 22,500	$ 16,000
3	$ 22,500	$ 16,500	$ 3,500
TOTAL	$ 67,500	$ 67,500	$ 67,500