equipment costing $130,000 is expected to have a residual value of $10,000 at the end of its six-
year useful life. The equipment is metered so that the number of units processed is counted. The
equipment is designed to process 1,000,000 units in its lifetime. In 2016 and 2017, the equipment
processed 180,000 units and 140,000 units respectively. Calculate the depreciation expense for
2016 and 2017 using each of the following methods:
- Straight-line
- Double-declining-balance
- Units of production
Answer:
- Straight-line
Equipment costing $130,000
residual value of $10,000
Life = 6 years
Straight-line depreciation
=Cost -salvage value / life
=130,000-10,000 /6
=20,000 per years
| Depreciation | |
| Year 2016 | 20,000 |
| Year 2017 | 20,000 |
- Double-declining-balance
In b. Double-declining-balance method we take the double rate then what in Straight-line
Straight-line
=100/6
16.67%
so in
Double-declining-balance it is
=16.67*2
=33.33%
| Year | Opening balance |
Rate | Depreciation | Closing balance |
| 2016 | 130,000 | 33.33% | 43329 | 86,671 |
| 2017 | 86,671 | 33.33% | 28887.444 | 57,784 |
. Units of production
Depreciation
= Cost-salvage value / Units produce during the life time
=130,000-10,000 /1,000,000
=0.12 per unit
| Year | Units produce | Rate | Depreciation |
| 2016 | 180,000 | 0.12 | 21600 |
| 2017 | 140,000 | 0.12 | 16800 |
