Company A, Company B and Company C had purchased the same piece of machinery 2 years ago at the beginning of 2022. The machinery was originally purchased for $96,000 and had a residual value of $5,000. At the time of purchase the estimated useful life of the asset was 4 years or the equivalent useful life in units-of-production equal to 18,200 units. At the beginning of 2024, it was determined that the total useful life of the asset was 6 years rather than 4 years originally expected or the equivalent total units-of- production of 32,200 units. In addition, to the extended useful life of the machinery, the revised residual value is estimated at $1,800. The actual number of units produced in the first two years was 6,100 units per year. The actual production for 2024 was 7,400 units. Each of the companies uses a different method of depreciation with Company A using the straight-line method of depreciation, Company B uses the units-of-production method with a per unit depreciation charge rounded to the nearest cent and Company C uses the double diminishing-balance method.
Company A, Company B and Company C had purchased the same piece of machinery 2 years ago at the beginning of 2022. The machinery was originally purchased for $96,000 and had a residual value of $5,000. At the time of purchase the estimated useful life of the asset was 4 years or the equivalent useful life in units-of-production equal to 18,200 units. At the beginning of 2024, it was determined that the total useful life of the asset was 6 years rather than 4 years originally expected or the equivalent total units-of- production of 32,200 units. In addition, to the extended useful life of the machinery, the revised residual value is estimated at $1,800. The actual number of units produced in the first two years was 6,100 units per year. The actual production for 2024 was 7,400 units. Each of the companies uses a different method of depreciation with Company A using the straight-line method of depreciation, Company B uses the units-of-production method with a per unit depreciation charge rounded to the nearest cent and Company C uses the double diminishing-balance method.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
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Transcribed Image Text:Company A, Company B and Company C had purchased the same piece of machinery 2 years ago at the beginning of 2022. The
machinery was originally purchased for $96,000 and had a residual value of $5,000. At the time of purchase the estimated useful life
of the asset was 4 years or the equivalent useful life in units-of-production equal to 18,200 units. At the beginning of 2024, it was
determined that the total useful life of the asset was 6 years rather than 4 years originally expected or the equivalent total units-of-
production of 32,200 units. In addition, to the extended useful life of the machinery, the revised residual value is estimated at $1,800.
The actual number of units produced in the first two years was 6,100 units per year. The actual production for 2024 was 7,400 units.
Each of the companies uses a different method of depreciation with Company A using the straight-line method of depreciation.
Company B uses the units-of-production method with a per unit depreciation charge rounded to the nearest cent and Company C
uses the double diminishing-balance method.
(a)
Calculate the original depreciation expense amounts prior to the revision in estimates for each of Company A, Company B and
Company C, for 2022 and 2023.
Company A
Company B
Company C
Depreciation Expense for 2022 Depreciation Expense for 2023
1
GA
IA
Transcribed Image Text:Calculate the revised depreciation expense amount for 2024 for each of Company A, Company B and Company C. (Round
depreciation per unit to 2 decimal places, e.g. 1.25 and final answers to O decimal places, e.g. 125.)
Company A
Company B
Company C
Revised annual depreciation for 2024
$
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