1. On April 22, 2023, Cullumber Enterprises purchased equipment for $134,400. The company expects to use the equipment for 11,500 working hours during its four-year life and that it will have a residual value of $12,500. Sunlight has a December 31 year end and pro-rates depreciation to the nearest month. The actual machine usage was: 1,700 hours in 2023; 2,600 hours in 2024; 3,500 hours in 2025; 3,000 hours in 2026; and 900 hours in 2027. a) Complete a depreciation schedule for the life of the asset under each of the following methods: 1. straight-line, 2. double diminishing-balance assuming a rate of 50%, and 3. units-of-production. b) Which method results in the lowest profit over the life of the asset? c) Which method results in the least cash used for depreciation over the life of the asset?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
1. On April 22, 2023, Cullumber Enterprises purchased equipment for $134,400. The company expects to use the equipment for 11,500 working hours during its four-year life and that it will have a residual value of $12,500. Sunlight has a December 31 year end and pro-rates
a) Complete a depreciation schedule for the life of the asset under each of the following methods:
1. straight-line,
2. double diminishing-balance assuming a rate of 50%, and
3.
b) Which method results in the lowest profit over the life of the asset?
c) Which method results in the least cash used for depreciation over the life of the asset?
Step by step
Solved in 7 steps
