Question

Machinery is purchased on July 1 of the current fiscal year for $240,000. It is expected to have a useful life of four years, or 25,000 operating hours, and a residual value of $15,000. Compute the depreciation for the last six months of the current fiscal year ending December 31 by each of the following methods: a. Straight-line $ 28,125 b. Double-declining-balance $ c. Units-of-activity (used for 1,600 hours during the current year) $

Answer 1

Answer:

a. $28,125

b. $60,000

c. $14,400

Explanation:

The computation of the depreciation expense for the last six months is shown below:

a) Straight-line method:

= (Purchase value of machinery - residual value) ÷ (useful life)

= ($240,000 - $15,000) ÷ (4 years)

= ($225,000) ÷ (4 years)  

= $56,250

In this method, the depreciation is same for all the remaining useful life

So, for 6 months it would be

= $56,250 × 6 months ÷ 12 months

= $28,125

(b) Double-declining balance method:

First we have to find the depreciation rate which is shown below:

= One÷ useful life

= 1 ÷ 4

= 25%

Now the rate is double So, 50%

In year 1, the original cost is $240,000 so the depreciation is $60,000 after applying the 50% depreciation rate  and 6 months

(c) Units-of-production method:

= (Purchase value of machinery - residual value) ÷ (estimated operating hours)  

= ($240,000 - $15,000) ÷ (25,000 operating hours)

= ($225,000) ÷ (25,000 operating hours)  

= $9 per hour

Now for the current year, it would be  

= Estimated operating hours in the current year × depreciation per hour

= 1,600 hours × $9

= $14,400