Explanation Depreciation expense : Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset on account of its wear and tear or obsolescence. Straight-line depreciation method : The depreciation method which assumes that the consumption of economic benefits of long-term asset could be distributed equally throughout the useful life of the asset is referred to as straight-line method. Units-of-production method : The depreciation method which assumes that the consumption of economic benefits of long-term asset is based on the production capacity or output is referred to as units-of-production method. Double-declining-balance method : The depreciation method which assumes that the consumption of economic benefits of long-term asset is high in the early years but gradually declines towards the end of its useful life is referred to as double-declining-balance method. Prepare a table showing depreciation expense under each depreciation method as follows: Year Straight-Line (in $) Units-of-Production (in $) Double-Declining-Balance (in $) 1 59,375 110,000 128,750 2 59,375 62,300 64,375 3 59,375 60,900 32,188 4 59,375 4,300 12,187 Total $237,500 $237,500 $237,500 Table (1) Working Notes: Compute the depreciation expense per year using straight-line method. Depreciation = Acquisition cost − Salvage value Useful life = $257,500 − $20,000 4 years = $ 59 , 375 The depreciation expense under the straight-line method is same for every year. Calculate the depreciable cost. Depreciable cost=Cost of the asset − Residual value =$64,000 − $ 6 , 000 = $ 58 , 000 Prepare depreciation schedule under units-of-production method. Year Depreciation per unit (A) Units (B) Depreciation expense (in $) ( ( C ) = ( A ) × ( B ) ) 1 $0.50 220,000 110,000 2 $0.50 124,600 62,300 3 $0.50 121,800 60,900 4 $0.50 15,200 4,300 Table (2) Compute depreciation per unit. Depreciation per unit = Asset cost – Residual value Estimated units of total production = $257,500–$20,000 475 , 000 units = $237,500 475 , 000 units = $0

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Ch. 8 - Prob. 1MCQ Ch. 8 - Prob. 2MCQ Ch. 8 - Prob. 3MCQ Ch. 8 - Prob. 4MCQ Ch. 8 - Prob. 5MCQ Ch. 8 - Prob. 1DQ Ch. 8 - Prob. 2DQ Ch. 8 - Prob. 3DQ Ch. 8 - Prob. 4DQ Ch. 8 - Prob. 5DQ

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