Question

A concrete and rock crusher for demolition work has been purchased for ​$​, and it has an estimated SV of ​$ at the end of its​ five-year life. Engineers have estimated that the following units of production​ (in m3 of crushed​ material) will be contracted over the next five years. Using the units of production depreciation​ method, what is the depreciation allowance in year ​, and what is the BV at the end of year ​?

Answer 1

Complete Question:

A concrete and rock crusher for demolition work has been purchased for ​$60,000​, and it has an estimated SV of ​$10,000 at the end of its​ five-year life. Engineers have estimated that the following units of production​ (in m3 of crushed​ material) will be contracted over the next five years.

End of year    Year 1    Year 2   Year 3   Year 4   Year 5

m3                  16,000  24,000  36,000  16,000   8,000

Using the units of production depreciation​ method, what is the depreciation allowance in year three ​, and what is the BV at the end of year ​two?

Answer:

a) Depreciation allowance in year three = $38,000

b) Book value at the end of year two = $40,000

Explanation:

a) Data and Calculations:

Cost of Equipment = $60,000

Salvage Value = $10,000

Depreciable amount = $50,000 ($60,000 - $10,000)

Useful life = 5 years

Total production units over 5 years = 100,000m3

Depreciation rate = $50,000/100,000 = $0.50

Year           Calculations          Depreciation  Depreciation    Book value

                                                    Expense    Allowance

Year one = 16,000 * $0.50 =      $8,000       $8,000               $52,000

Year two = 24,000 * $0.50 =    $12,000    $20,000               $40,000

Year three = 36,000 * $0.50 = $18,000    $38,000                $22,000

Year four = 16,000 * $0.50 =     $8,000    $46,000                 $14,000

Year five = 8,000 * $0.50 =       $4,000    $50,000                 $10,000