A machine that produces cellphone components is purchased on

A machine that produces cellphone components is purchased on January 1, 2016, for $147,000. It is expected to have a useful life of four years and a residual value of $15,000. The machine is expected to produce a total of 200,000 components during its life, distributed as follows: 40,000 in 2016; 50,000 in 2017; 60,000 in 2018; and 50,000 in 2019. The company has a December 31 year end.

Calculate the amount of depreciation to be charged each year, using each of the following methods:

i.	Straight-line method

Solution

Straight Line Method Depreciable Amount =Cost-Salvage Value =147000-15000 132,000 Depreciation per year =Depreciable value/Years =132000/4     33,000 Depreciation rate =1/4 25.00% Double declining So Depreciation rate under double decling method will be 25%*2 Depreciation Year Opening WDV Depreciation-opening WDV * 50% Closing WDV 1                                                         147,000                                                     73,500     73,500 2                                                           73,500                                                     36,750     36,750 3                                                           36,750                                                     18,375     18,375 4                                                           18,375                                                        3,375     15,000 Balance to make closing wdv equal to residual value Under Units of production Depreciation per unit =Depreciable value/ Total no of units =132000/200000     0.6600 Year Production Depreciation @ 0.66 1                                                           40,000                                                     26,400 2                                                           50,000                                                     33,000 3                                                           60,000                                                     39,600 4                                                           50,000                                                     33,000 Depreciation table SLM DDM Units production Year 1                                                           33,000                                                     73,500     26,400 2                                                           33,000                                                     36,750     33,000 3                                                           33,000                                                     18,375     39,600 4                                                           33,000                                                        3,375     33,000 Sum of depreciation for first 2 years SLM DDM Units production                                                           66,000                                                   110,250     59,400 Highest depreication comes in double declining method Sum of depreciation for all 4 years SLM DDM Units production                                                         132,000                                                   132,000 132,000 All are same