Answer and Explanation:
a. Straight line method
Annual depreciation = (Cost price - Scrap value) ÷ Useful life
= ($270,000 - $9,000) ÷ 3
= $261,000 ÷ 3
= $87,000
Year 1 Year 2 Year 3 Year 4
Depreciation $65,250 87,000 87,000 $21,750
Working note
Depreciation for year 1 = $87,000 × 9 ÷ 12
= $65,250
Depreciation for year 2 = $87,000 × 3 ÷ 12
= $21,750
b. Units-of-activity method
Depreciation per hour = (Cost - Scrap value) ÷ Number of operating hours
= ($270,000 - $9,000) ÷ 18,000
= $261,000 ÷ 18,000
= $14.5
Year 1 Year 2 Year 3 Year 4
Depreciation $108,750 $79,750 $58,000 $14,500
Working note
Depreciation for year 1 = 7,500 × $14.5
= $108,750
Depreciation for year 2 = 5,500 × $14.5
= $79,750
Depreciation for year 3 = 4,000 × $14.5
= $58,000
Depreciation for year 4 = 1,000 × 14.5
= $14,500
C. Double declining balance method
Under the double-declining balance method, depreciation on the decreased asset balance is paid at double straight line depreciation rate.
Straight line depreciation rate = Annual depreciation ÷ Depreciable base
= $87,000 ÷ $261,000
= 33.33%
So, double declining depreciation rate = 2 × 33.33%
= 66.67%
Year 1 Year 2 Year 3 Year 4
Depreciation $135,000 $90,000 $30,000 $6,000
Working Note
Depreciation for year 1 = $270,000 × 66.67% × 9 ÷ 12
= $135,000
Depreciation for year 2 = ($270,000 - $135,000) × 66.67%
= $90,000
Depreciation for year 3 = ($270,000 - $135,000 - $90,000) × 66.67%
= $30,000
Total depreciable assets = $135,000 + $90,000 + $30,000 + $6,000
= $261,000
