Nicole’s Getaway Spa (NGS) purchased a hydrotherapy tub system to add to the wellness programs at NGS. The machine was purchased at the beginning of the year at a cost of $10,000. The estimated useful life was five years and the residual value was $1,000. Assume that the estimated productive life of the machine is 10,000 hours. Expected annual production was year 1, 2,400 hours; year 2, 2,500 hours; year 3, 2,000 hours; year 4, 2,100 hours; and year 5, 1,000 hours.
The machine was purchased at the beginning of the year at a cost of $10,000.
The estimated useful life was five years
Assume that the estimated productive life of the machine is 10,000 hours.
Expected annual production was year 1, 2,400 hours; year 2, 2,500 hours; year 3, 2,000 hours; year 4, 2,100 hours; and year 5, 1,000 hours.
Now first of all we will calculate Depriciation as per three method as follow
(1)
StraightLine
Depriciation
=Cost/ Life of the assets
=10,000-1000/ 5 year
= 1800 each year
(2)
Units-of-production for year 3
= Cost * Units of production for the year/ Total production during the life
= 9,000*2000/10000
=1800
(3)
Double declining
In this method rate is double than Stright line method
So 20 % in SLM then 40% in DDM
So 40% in DDM
| Year | Opeaning WDV |
Depri @ 40% |
Clg WDV |
| 1 | 9000 | 3600 | 5400 |
| 2 | 5400 | 2160 | 3240 |
| 3 | 3240 | 1296 | 1944 |
| 4 | 1944 | 777.6 | 1166.4 |
| 5 | 1166.4 | 466.56 | 699.84 |
Now we will make the estimated income statement
nicole’s Getaway Spa
Forcasted incomestatement
for the year ended year3
| Straight Line |
Units-of- production |
Double- decliningbalance |
|
| Sales Revenue | 47000 | 47000 | 47000 |
| Cost of Goods Sold | 37000 | 37000 | 37000 |
| Gross Profit | 10000 | 10000 | 10000 |
| Operating Expenses: | |||
| Depreciation Expense | 1800 | 1800 | 1296 |
| Other Operating Expenses | 4700 | 4700 | 4700 |
| Total Operating Expenses | 6500 | 6500 | 5996 |
| Income from Operations | 3500 | 3500 | 4004 |
| Interest Expense | 900 | 900 | 900 |
| Income before Income Tax Expense | 2600 | 2600 | 3104 |
