LG Berhad operates four types of machines. Because of their varied functions, management has decided that four different depreciation methods will be used to determine depreciation charges. Information on the equipment is summarised as follows: MachineType Date acquired Cost $ Scrap Value $ Useful life DepreciationMethod 1 1/7/16 95400 10000 4 yrs Diminishing balance 2 1/7/16 148000 15000 6 yrs Sum-of-years'-digits 3 1/1/17 27500 5500 10 years Straight-line 4 15/4/18 39700 4600 20000hours Hours of production The depreciation rate used for machine type 1 is 25%. Use of machine type 4 was 1,200 hours in the year ended 30 June 2018; 3,200 hours in 2019; and 2,600 hours in 2020. Required: Assuming the financial year ends on 30 June each year and that depreciation is recorded to the nearest month, calculate the depreciation charges for year ended 30 June 2017, 2018, 2019 and 2020 by preparing a schedule with the following headings. Show all workings. Depreciation expense for year ended 30 June Equipment type 2017 2018 2019 2020 1 2 3 4
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.
LG Berhad operates four types of machines. Because of their varied functions, management has decided that four different
| MachineType | Date acquired | Cost $ | Scrap Value $ | Useful life | DepreciationMethod |
| 1 | 1/7/16 | 95400 | 10000 | 4 yrs | Diminishing balance |
| 2 | 1/7/16 | 148000 | 15000 | 6 yrs | Sum-of-years'-digits |
| 3 | 1/1/17 | 27500 | 5500 | 10 years | Straight-line |
| 4 | 15/4/18 | 39700 | 4600 | 20000hours | Hours of production |
The depreciation rate used for machine type 1 is 25%.
Use of machine type 4 was 1,200 hours in the year ended 30 June 2018; 3,200 hours in 2019; and 2,600 hours in 2020.
Required:
Assuming the financial year ends on 30 June each year and that depreciation is recorded to the nearest month, calculate the depreciation charges for year ended 30 June 2017, 2018, 2019 and 2020 by preparing a schedule with the following headings. Show all workings.
| Depreciation expense for year ended 30 June | ||||
| Equipment type | 2017 | 2018 | 2019 | 2020 |
| 1 | ||||
| 2 | ||||
| 3 | ||||
| 4 |
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