Answer:
Year 1: Depreciation expense = $15,556
Year 2: Depreciation expense = $13,611
Year 3: Depreciation expense = $11,667
Year 4: Depreciation expense = $9,722
Year 5: Depreciation expense = $7,778
Year 6: Depreciation expense = $5,833
Year 7: Depreciation expense = $3,889
Year 8: Depreciation expense = $1,944
Explanation:
Step 1: Calculation of machine depreciable cost
Depreciable cost of machine = $67,000 + $3,000 = $70,000
Step 2: Calculation of sum of the year's digit
Sum of the year's digit = (1 + 2 + 3 + 4 + 5 + 6 + 7 + 8) = 36
Step 3: Computation of depreciation
The following formula will be used:
Depreciation expenses = (Remaining useful asset life ÷ Sum of the year's digit) × machine depreciable cost
Net book value for the current year = Net book value for the previous year - Depreciation expenses for the current year
The calculation now proceeds as follows:
Machine depreciable cost = $70,000
Year 1: Depreciation expense = [(8 ÷ 36) × 70,000) = $15,556
Year 1: Net book value = $70,000 - $15,556 = $54,444
Year 2: Depreciation expense = [(7 ÷ 36) × 70,000) = $13,611
Year 2: Net book value = $54,444 - $13,611 = $40,833
Year 3: Depreciation expense = [(6 ÷ 36) × 70,000) = $11,667
Year 3: Net book value = $40,833 - $11,667 = $29,667
Year 4: Depreciation expense = [(5 ÷ 36) × 70,000) = $9,722
Year 4: Net book value = $29,667 - $9,722 = $19,444
Year 5: Depreciation expense = [(4 ÷ 36) × 70,000) = $7,778
Year 5: Net book value = $19,444 - $7,778 = $11,667
Year 6: Depreciation expense = [(3 ÷ 36) × 70,000) = $5,833
Year 6: Net book value = $11,667 - $5,833 = $5,833
Year 7: Depreciation expense = [(2 ÷ 36) × 70,000) = $3,889
Year 7: Net book value = $5,833 - $3,889 = $1,944
Year 8: Depreciation expense = [(1 ÷ 36) × 70,000) = $1,944
Year 8: Net book value = $1,944 - $1,944 = $0
It can be seen that the asset becomes fully depreciated and its value become zero after year 8.
