Beta Company purchased machinery on June 1, 2018 for $89,000. It provided the following data: Estimated Residual Value - $5 000 Estimated Service Life – 8 years Estimated Total Work Hours – 42 000 hours Estimated Total Production – 525 000 units Machine Usage (2018) – 5 500 hrs (2019) – 6 000 hrs Machine Production (2018) – 48 000 units (2019) – 55 000 units Beta Company uses a fractional-year policy to the nearest full month and its financial year ends December 31. Required: What is the depreciable base of the machine? b) Calculate the depreciation expense for the year ending December 31, 2018 and 2019 using the following methods: Round to nearest whole number i. Straight-line. ii. Units of output. iii. Sum of the years’ digits. iv. Double declining balance.
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.
Beta Company purchased machinery on June 1, 2018 for $89,000. It provided the following data:
Estimated Residual Value - $5 000
Estimated Service Life – 8 years
Estimated Total Work Hours – 42 000 hours
Estimated Total Production – 525 000 units
Machine Usage (2018) – 5 500 hrs
(2019) – 6 000 hrs
Machine Production (2018) – 48 000 units
(2019) – 55 000 units
Beta Company uses a fractional-year policy to the nearest full month and its financial year ends December 31.
Required:
- What is the
depreciable base of the machine? - b) Calculate the depreciation expense for the year ending December 31, 2018 and 2019 using the following methods: Round to nearest whole number
i. Straight-line.
ii. Units of output.
iii. Sum of the years’ digits.
iv. Double declining balance.
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