Exact Photo Service purchased a new color printer at the beginning of Year 1 for $40,600. The printer is expected to have a four-year useful life and a $4,060 salvage value. The expected print production is estimated at 1,500,000 pages. Actual print production for the four years was as follows: Year 1 549,200 Year 2 476,900 Year 3 383,100 Year 4 393,600 Total 1,802,800 The printer was sold at the end of Year 4 for $4,460. Required Compute the depreciation expense for each of the four years, using double-declining-balance depreciation. Compute the depreciation expense for each of the four years, using units-of-production depreciation. Calculate the amount of gain or loss from the sale of the asset under each of the depreciation methods.
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.
Exact Photo Service purchased a new color printer at the beginning of Year 1 for $40,600. The printer is expected to have a four-year useful life and a $4,060 salvage value. The expected print production is estimated at 1,500,000 pages. Actual print production for the four years was as follows:
| Year 1 | 549,200 |
| Year 2 | 476,900 |
| Year 3 | 383,100 |
| Year 4 | 393,600 |
| Total | 1,802,800 |
The printer was sold at the end of Year 4 for $4,460.
Required
- Compute the
depreciation expense for each of the four years, using double-declining-balance depreciation. - Compute the depreciation expense for each of the four years, using units-of-production depreciation.
- Calculate the amount of gain or loss from the sale of the asset under each of the depreciation methods.
Lets understand the basics.
Depreciation is a reduction in value of asset due to wear and tear, technological advancement and other reason.
Managment choose depreciation method and determine useful life based on their own estimation of usage.
In double declining balance method, depreciation is calculated at double rate of straight line basis.
Formula for rate = (1/Useful life) * 2 * 100
In unit of production method, depreciation is calculated based on production in a year against estimated production from asset life.
Formula = (Cost of asset - Salvage value) * Production in a year/Total estimated production
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
