Answer:
Straight line method result the $14,000 highest net income in 2nd year.
Explanation:
According to the scenario, computation of the given data are as follows:-
Straight Line Method Depreciation Method = (Purchase Value - Residual Value) ÷ Useful Life
= ($22,000 - $2,000) ÷ 5
= $20,000 ÷ 5 = $4,000
Straight Line Method:-
Year Cost($) Dep. Amount/ year Accumulated Dep. Book Value
1 22,000 4,000 4,000 18,000
2 22,000 4,000 8,000 14,000
3 22,000 4,000 12,000 10,000
4 22,000 4,000 16,000 6,000
5 22,000 4,000 20,000 2,000
Unit of Production Method:-
Year Cost Units Calculation Of Dep. Dep. Amount/Year Accumulated Dep. Book Value($)
1 22,000 2,000 (22,000-2,000)×2,000÷10,000 4,000 4,000 18,000
2 22,000 3,000 (22,000-2,000)×3,000÷10,000 6,000 10,000 12,000
3 22,000 2,000 (22,000-2000)×2,000÷10,000 4,000 14,000 8,000
4 22,000 2,000 (22,000-2,000)×2,000÷10,000 4,000 18,000 4,000
5 22,000 1,000 (22,000-2,000)×1,000÷10,000 2,000 20,000 2,000
Total 10,000
Calculation of Depreciation = (Machine Value - Residual Value) × No. of Unit ÷ Total Unit
Straight line method result the $14,000 highest net income in 2nd year.
