**Depreciation Exercise Instructions:****Assumptions:**- Purchase at time 0 of a piece of widget processing equipment for an assumed cost of $18,300.- The equipment is assumed to have a 7-year economic life.- The assumed salvage value for the widget equipment at the end of its economic life is $800.- The equipment is expected to produce 35,000 widgets over its economic life.- Actual annual production of widgets is 3,450 in year 1, 5,200 in year 2, 5,400 in year 3, 5,350 each in years 4-6 and 4,900 in year 7.- Assume for the declining balance method that you will apply a double declining balance approach.Use an Excel spreadsheet to create a table similar to the one shown below. On your Excel spreadsheet, using the assumptions listed above, calculate the annual depreciation expense for the widget processing equipment using each of the four methods and fill in the table in Excel.After you have completed the calculations, determine which method you would choose to use for tax purposes, if you were in the company’s financial management team, and explain why in a footnote to the table. Then add a second footnote with which method you would choose for financial reporting purposes and why.Finally, submit your completed Excel spreadsheet online via Canvas.---**Depreciation Table Layout:**| | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Total Depreciation ||--------------------------|--------|--------|--------|--------|--------|--------|--------|--------------------|| **Straight Line** | | | | | | | | || **Units of Production** | | | | | | | | || **Sum-of-Years’-Digits** | | | | | | | | || **Double Declining Balance** | | | | | | | | |(Note: The table is empty as it is meant to be filled in with calculated data from the exercise.)

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Description: **Depreciation Exercise Instructions:****Assumptions:**- Purchase at time 0 of a piece of widget processing equipment for an assumed cost of $18,300.- The equipment is assumed to have a 7-year economic life.- The assumed salvage value for the widget

Depreciation is an accounting method for allocating the cost of a physical or cost of a tangible over its usable life or expected life. Depreciation is a term that describes how much of an asset's worth has been consumed. Straight Line Depriciation = ($18300-$800) / 7 Years = $17500 each year Units od Production = ($18300-$800) / 35000 units = $0.50 per units Sum of Years Digit = ($18300-$800) / (7+6+5+4+3+2+1) = $625 per digit Double Declining Balance = 1/7 x 2 = 28.57%

Business

Accounting

Purchase at time 0 of a piece of widget processing equipment for The equipment is assumed to have a 7-year economic life. The assumed salvage value for the widget equipment at the end The equipment is expected to produce 35,000 widgets over its ec Actual annual production of widgets is 3,450 in year 1, 5,200 in y each in years 4-6 and 4,900 in year 7. Assume for the declining balance method that you will apply a do approach. Use an Excel spreadsheet to create a table similar to the one sho spreadsheet, using the assumptions listed above, calculate the a the wid aet pro cessing eguin ment using each of the four methods

Purchase at time 0 of a piece of widget processing equipment for The equipment is assumed to have a 7-year economic life. The assumed salvage value for the widget equipment at the end The equipment is expected to produce 35,000 widgets over its ec Actual annual production of widgets is 3,450 in year 1, 5,200 in y each in years 4-6 and 4,900 in year 7. Assume for the declining balance method that you will apply a do approach. Use an Excel spreadsheet to create a table similar to the one sho spreadsheet, using the assumptions listed above, calculate the a the wid aet pro cessing eguin ment using each of the four methods

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

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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**Depreciation Exercise Instructions:**

**Assumptions:**
- Purchase at time 0 of a piece of widget processing equipment for an assumed cost of $18,300.
- The equipment is assumed to have a 7-year economic life.
- The assumed salvage value for the widget equipment at the end of its economic life is $800.
- The equipment is expected to produce 35,000 widgets over its economic life.
- Actual annual production of widgets is 3,450 in year 1, 5,200 in year 2, 5,400 in year 3, 5,350 each in years 4-6 and 4,900 in year 7.
- Assume for the declining balance method that you will apply a double declining balance approach.

Use an Excel spreadsheet to create a table similar to the one shown below. On your Excel spreadsheet, using the assumptions listed above, calculate the annual depreciation expense for the widget processing equipment using each of the four methods and fill in the table in Excel.

After you have completed the calculations, determine which method you would choose to use for tax purposes, if you were in the company’s financial management team, and explain why in a footnote to the table. Then add a second footnote with which method you would choose for financial reporting purposes and why.

Finally, submit your completed Excel spreadsheet online via Canvas.

---

**Depreciation Table Layout:**

| | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Total Depreciation |
|--------------------------|--------|--------|--------|--------|--------|--------|--------|--------------------|
| **Straight Line** | | | | | | | | |
| **Units of Production** | | | | | | | | |
| **Sum-of-Years’-Digits** | | | | | | | | |
| **Double Declining Balance** | | | | | | | | |

(Note: The table is empty as it is meant to be filled in with calculated data from the exercise.)

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Subject: accounting