Ramirez Company installs a computerized manufacturing machin

Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of $45,900. The machine\'s useful life is estimated at 10 years, or 389,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 32,900 units of product.

1.Determine the machine’s second-year depreciation using the double-declining-balance method

2Determine the machine’s second-year depreciation and year end book value under the straight-line method.

3.Determine the machine’s second-year depreciation using the units-of-production method.

Solution

CALCULATION OF THE DEPRECIATION AS PER DOUBLE DECLINE METHOD Purchase Cost of Machine $                45,900.00 Useful Life = 10 years Depreciation per year = $                  4,590.00 (Purchase price / Useful life) Rate of Depreciation = Rate of Depreciation = (1 / 10 Years ) 0.10 or 10% (Depreication / Purchase price ) Double decline deprection rate = 10% * 2 = 20.0% Purchase Value of the Assets $                45,900.00 Depreciation for the year 1 @ 20% $                  9,180.00 Closing balance for the year1 $                36,720.00 Opening Balance for the year 2 $                36,720.00 Depreciation for the year 2 @ 20% $                  7,344.00 Closing Balance of the year 2 $                29,376.00 CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD Purchase Cost of Machine $                45,900.00 Less: Salvage Value $                  7,000.00 Net Value for Depreciation $                38,900.00 Usefule life of the Assets 10 years Depreciation per year = Value for Depreciation / 10 years = $                  3,890.00 Depreciation for the year 2 = $                  3,890.00 CALCULATION OF THE DEPRECIATION AS PER UNITS OF PRODUCTION Purchase Cost of Machine $                45,900.00 Less: Salvage Value $                  7,000.00 Net Value for Depreciation $                38,900.00 Expected to produce units                3,89,000.00 Units Depreciation per unit =                               0.10 Per Unit ($ 38,900 / 389,000 Units) Depreciation for Year 2 = (32900 units * $ 0.10) $                  3,290.00 Answers = Depreciation in the year 2 as per Double declining method =                      7,344.00 Straight line method =                      3,890.00 Unit of Production =                      3,290.00