Explanation:
The computation is shown below:
a) Straight-line method:
= (Purchased cost of packaging equipment - residual value) ÷ (expected useful life)
= ($72,000 - $4,500) ÷ (3 years)
= ($67,500) ÷ (3 years)
= $22,500
In this method, the depreciation is same for all the remaining useful life
So for all years, the total depreciation is
= $22,500 × 3 years
= $67,500
(b) Double-declining balance method:
First we have to find the depreciation rate which is shown below:
= One ÷ expected useful life
= 1 ÷ 3
= 33.33%
Now the rate is double So, 66.67%
In year 1, the original cost is $72,000, so the depreciation is $48,000 after applying the 66.67% depreciation rate
And, in year 2, it would be
= ($72,000 - $48,000) × 66.67%
= $16,000
And, in year 3, it would be
= $67,500 - $48,000 - $16,000
= $3,500
So the total depreciation is
= $48,000 + $16,000 + $3,500
= $67,500
(c) Units-of-production method:
= (Purchased cost of packaging equipment - residual value) ÷ (estimated operating hours)
= ($72,000 - $4,500) ÷ (18,000 hours)
= ($67,500) ÷ (18,000 hours)
= $3.75 per hour
For first year
= 7,600 × $3.75 per hour
= $28,500
For second year
= 6,000 × $3.75 per hour
= $22,500
For third year
= 4,400 × $3.75 per hour
= $16,500
So, the total depreciation is
= $28,500 + $22,500 + $16,500
= $67,500
2. By above calculations, we concluded that the double declining method yields higher depreciation expense in year 1 i.e $48,000
3. By above calculations, we concluded that the all depreciation methods yields most depreciation over the three-year life of the equipment
