Answer:
(a) Straight Line Depreciation for 2020 $ 28,800
(b) Activity Method of Depreciation for 2020 $ 5,616
(c) Sum of the years Depreciation for 2021 $ 38,400
(d) Double declining balance depreciation for 2021 $ 39,096
Explanation:
Computation for requirement (a) - Straight Line Depreciation for 2020
Straight line method considers depreciation on adepreciable base after considering a salvage value and spreads it evenly over the life of the asset.
Cost of machine $ 162,900
Estimated Salvage Value <u>$ 18.900</u>
Depreciable Basis $ 144,000
Estimated Life 5 years
Straight Line Depreciation for 2020 = $ 144,000/5 = $ 28,800
Computation for requirement (b) - Activity Method Depreciation for 2020
Activity method depreciation considers depreciation over the estimated usage of the asset and multiplies by the usage in a given period. The depreciable basis is after considering the salvage value.
Depreciable basis - same as SL depreciation $ 144,000
Usage Life of the machine 20,000 hours
Machine usage for 2020 780 hours
Depreciation on a per hour basis $ 144,000/ 20,000 = $ 7.2 per hour
Depreciation for 2020 on a usage of 780 hours = 780 * $7.20 = $ 5,616
Computation for requirement (c) - Sum of the years digits for 2021
In a sum of the years depreciation method, the sum of the life of the assets are added and considered as a depreciable life. The salvage value is considered in determining the depreciable basis.
Depreciable basis - same as SL depreciation $ 144,000
Estimated life of the asset 5 years
Sum of the years, (5+4+3+2+1) 15
so the first year depreciation shall be 5/15, the next year 4/15 and so on,
We need to compute the depreciation for 2021 which is the second year, so the formula shall be:
4/15 (remaining useful life) * $ 144,000(depreciable basis) = $ 38,400
Computation for requirement (d) - Double declining balance for 2021
In a double declining balance method the depreciation rate (%) is double that of a straight line method. The subsequent years depreciation is on a reduced balance. No salvage value is considered
The first year's depreciation is calculated
Cost of Machine* (2 * Straight Line depreciation %)
$ 162,900* (2 * 20 %) so the depreciation for 2020 would be
$ 162,900 * 40 % = $ 65,160.
For 2021, which is the requirement in our question, the cost would be the reduced value.
Original Cost of the machine $ 162,900
Double Declining balance Depreciation 2020 <u>$ 65,160</u>
Declining Cost basis for 2021 depreciation <u>$ 97,740</u>
Depreciation @ 40 % $ 39,096
