| Strong Metals Inc. purchased a new stamping machine at the beginning of the year at a cost of $900,000. The estimated residual value was $106,200. Assume that the estimated useful life was five years, and the estimated productive life of the machine was 294,000 units. Actual annual production was as follows: |
| Year | Units |
| 1 | 81,000 |
| 2 | 69,000 |
| 3 | 36,000 |
| 4 | 64,000 |
| 5 | 44,000 |
| Required: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1. | Complete a separate depreciation schedule for each of the alternative methods.
a. Straight-line
b. Units of production
c. double-declining balance
|
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Strong Metals Inc. purchased a new stamping machine at the beginning of the year at a cost of $900,000.
The estimated residual value was $106,200.
The estimated useful life was five years,
and the estimated productive life of the machine was 294,000 units.
Actual annual production was as follows:
1
Depriciation as per strainght line=
= 9000,000 – 106200 / 5 year
=106200
| Year | Inititial Cost | Depriciation | Accumulated Depriciation |
Ending Balance |
| 1 | 900000 | 158760 | 158760 | 741240 |
| 2 | 741240 | 158760 | 317520 | 582480 |
| 3 | 582480 | 158760 | 476280 | 423720 |
| 4 | 423720 | 158760 | 635040 | 264960 |
| 5 | 264960 | 158760 | 793800 | 106200 |
| Salvage at | 106200 | |||
| Net | 0 | |||
b. Units of production
Annual depriciation = Initial cost – Salvage value * annual production / total production
= 9000,000 -106200 *annual production / total production
Calculation for 5 year is as follow
| Year | Production unit of year |
Inititial Cost | Depriciation | Accumulated Depriciation |
Ending Balance |
| 1 | 81000 | 900000 | 218700 | 218700 | 681300 |
| 2 | 69000 | 681300 | 186300 | 405000 | 495000 |
| 3 | 36000 | 495000 | 97200 | 502200 | 397800 |
| 4 | 64000 | 397800 | 172800 | 675000 | 225000 |
| 5 | 44000 | 225000 | 118800 | 793800 | 106200 |
| Salvage at | 106200 | ||||
| Net | 0 | ||||
c. double-declining balance
Double-declining balance (ceases when the book value = the estimated salvage value)
2 × Straight-line depreciation rate × Book value at the beginning of the year
We will calculate as per double declining method as follow
Depriciation as per straightlime is 20 % ( 100% / 5 year)
So as per DDM it will be 40%
Calculation is as follow
| Year | NBV= Net book Value |
Double-declining balance depreciation computed as 2 × SL rate × beginning NBV |
Accumulated Depriciation |
Ending Balance |
| 1 | 900000 | 360000 | 360000 | 540000 |
| 2 | 540000 | 216000 | 518760 | 324000 |
| 3 | 324000 | 129600 | 677520 | 194400 |
| 4 | 194400 | 77760 | 836280 | 116640 |
| 5 | 116640 | 10440 | 995040 | 106200 |
| Salvage at | 106200 | |||
| Net | 0 | |||
