Scribd
Upload
6 views5 pages

Classwork Ch. 10

The document provides examples of calculating depreciation for plant assets using three methods: straight-line, units of activity, and double-declining balance. It includes detailed calculations for a machine purchased by Premium Belgian Company and another by Smith Company, outlining the depreciation expenses for specific years and the book values at certain points. The examples illustrate how to compute annual depreciation and accumulated depreciation based on different methods and parameters.

Uploaded by

poolknight8
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
6 views5 pages

Classwork Ch. 10

The document provides examples of calculating depreciation for plant assets using three methods: straight-line, units of activity, and double-declining balance. It includes detailed calculations for a machine purchased by Premium Belgian Company and another by Smith Company, outlining the depreciation expenses for specific years and the book values at certain points. The examples illustrate how to compute annual depreciation and accumulated depreciation based on different methods and parameters.

Uploaded by

poolknight8
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 5

Classwork

Ch. 10
Plant Assets, Natural Resources, and Intangible Assets

Example 1:
On January 1, 2022, Premium Belgian Company purchased a machine. The following
information is related to the machine:

Cost of the machine $80,000


Estimated salvage value 5,000
Estimated useful life in years 5
Estimated useful life in hours 100,000

Required:

1. Assuming that the company uses the straight-line method, compute the
amount of depreciation expense that will be recorded in the fourth year of the
machine’s life.
2. Assuming that the company uses the units of activity method, compute the
amount of depreciation expense that will be recorded in the first and second
year of the machine’s useful life, if actual hours during the first year were
26,000 hours and the actual hours in second year were 15,000 hours.

3. Assuming that the company uses the double-declining balance method, what
is the book value of the machine at the end of the second year?

1
Answer:

1. The Straight- line Method


Depreciation Expense = Cost – Salvage value
Useful life in years

Depreciation expense each year = 80,000 - 5000 = $15,000/year


5 years

Year Depreciable years Annual Accumulated


base depreciation Depreciation
expense
2021 75,000 5 15,000 15,000
2022 75,000 5 15,000 30,000
2023 75,000 5 15,000 45,000
2024 75,000 5 15,000 60,000
2025 75,000 5 15,000 75,000

2. The units of activity method:

Depreciation cost Per unit = Cost – Salvage Value


Useful life in units of activity

= 80,000 - 5000
100,000 hours = $0.75/hour

Depreciation expense any year= Depreciation cost per unit ×


Actual units of activity during the year

First year Depreciation Expense= $ 0.75/hour* 26,000= $ 19,500

Second year Depreciation Expense = $ 0.75/hour * 15,000= $ 11,250

2
3. The double-declining balance method:

Double Declining Balance Rate (DDR)


= 100% / useful life in years * 2 ( fixed)

= 100% / 5 years = 20*2= 40%


(1) (2) (3) (4)
Year Cost Annual Depreciation Expense Accumulated Book
= Book Value Beginning of Depreciation Value
Year × Depreciation Rate Old (3) + (2) (1) – (3)

First $80,000 $80,000× 40% = $32,000 $32,000 $48,000

Second 80,000 48000 × 40% = $19,200 51,200 28,800

Third 80,000 28,800 × 40% = 11,520 62,720 17,280

Example 2: Do it:

3
On January 1, 2023, Smith Company purchased a machine. The
following information is related to that machine:

Cost of the machine $50,000


Estimated salvage value 2,000
Estimated useful life in years 8
Estimated useful life in machine hours 60,000

Instructions:
1. If the company uses the straight-line method, compute the
amount of depreciation expense that will be recorded in the fifth
year of the machine’s useful life.
2. If the company uses the units-of-activity method, compute the
amount of depreciation expense that will be recorded in the first
year of the machine’s useful life if actual machine hours used
during the first year were 8,000 hours.
3. If the company uses the double-declining balance method,
what is the book value of the machine at the end of the second
year?

Answer:

4
1. Depreciation Expense Any Year = $50,000 - $2,000 = $6,000
8 Years
2. Depreciation Expense Per Hour = ($50,000 - $2,000) ÷ 60,000 hours =
$0.80

Depreciation Expense First Year = 8,000 hours × $0.80 = $6,400

3. Straight Line Depreciation Rate = 100% ÷ 8 = 12.5%


Double Declining Balance Rate = 12.5% × 2 = 25%

(1) (2) (3) (4)


Year Cost Annual Depreciation Accumulate Book
Expense = Book Value d Value
Beginning of Year × Depreciation (1) – (3)
Depreciation Rate Old (3) + (2)

First $50,000 $50,000 × 25% = $12,500 $12,500 $37,500

Second $50,000 $37,500 × 25% = $9,375 21,875 28,125

You might also like