Banko Incorporated manufactures sporting goods. The following information applies to a machine purchased on January 1, Year 1. Purchase price $85,800 Delivery cost $5,000 Installation charge $2,000 Estimated life 5 years Estimated units 148,000 Salvage estimate $4,000 During Year 1, the machine produced 44,000 units, and during Year 2 it produced 46,000 units. Required Determine the amount of depreciation expense for Year 1 and Year 2 using straight-line method. Determine the amount of depreciation expense for Year 1 and Year 2 using double-declining-balance method. Determine the amount of depreciation expense for Year 1 and Year 2 using units of production method. Determine the amount of depreciation expense for Year 1 and Year 2 using MACRS, assuming that the machine is classified as seven-year property. (Round your answers to the nearest dollar amount.) MACRS table: Year 5-Year property,% 7-Year property,% 1 20.00 14.29 2 32.00 24.49 3 19.20 17.49 4 11.52 12.49 5 11.52 8.93 6 5.76 8.92 7 8.93 8 4.46
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.
| Purchase price | $85,800 | |
|---|---|---|
| Delivery cost | $5,000 | |
| Installation charge | $2,000 | |
| Estimated life | 5 | years |
| Estimated units | 148,000 | |
| Salvage estimate | $4,000 |
During Year 1, the machine produced 44,000 units, and during Year 2 it produced 46,000 units.
Required
- Determine the amount of
depreciation expense for Year 1 and Year 2 using straight-line method. - Determine the amount of depreciation expense for Year 1 and Year 2 using double-declining-balance method.
- Determine the amount of depreciation expense for Year 1 and Year 2 using
units of production method . - Determine the amount of depreciation expense for Year 1 and Year 2 using MACRS, assuming that the machine is classified as seven-year property. (Round your answers to the nearest dollar amount.)
MACRS table:
| Year | 5-Year property,% | 7-Year property,% |
|---|---|---|
| 1 | 20.00 | 14.29 |
| 2 | 32.00 | 24.49 |
| 3 | 19.20 | 17.49 |
| 4 | 11.52 | 12.49 |
| 5 | 11.52 | 8.93 |
| 6 | 5.76 | 8.92 |
| 7 | 8.93 | |
| 8 | 4.46 |
Depreciation Expense - Depreciation is the value representing a decrease or reduction in the value of the asset over a period of the useful life of the asset. Such reduction in value is due to the factors of wear and tear, technology obsolescence, etc. Such depreciation expense is shown under expenses in the income statement and simultaneous reduction from the value of assets in the balance sheet.
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