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
