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Homework answers / question archive / Oct 1, 2017 purchase A machine costing $30,000 with a five year life and salvage value $2,000

Oct 1, 2017 purchase A machine costing $30,000 with a five year life and salvage value $2,000

Accounting

Oct 1, 2017 purchase A machine costing $30,000 with a five year life and salvage value $2,000. The manager estimates the machine will prodcue 1,000 units of products during its useful life. It actually produces the following units 300 units in Year 1, 2,000 units in Year 2, 3,000 units in Year 3, 2,700 in Year 4, 1,200 Year 5, and 800 in Year 6. Compute the Depreciation Expense for three different methods: (Hint: Check the Purchase DATE !!!!) Straight line method Depreciation Schedule What is the Je to record Depreciation Expense at Dec 31, 2017 Date Account Title Debit Credit based on Straightline method. Year What is the JE to record Depreciation Expense at Dec 31, 2018 Date Account Title Debit Credit Unit of Production Method Year Total Double Declining Method Depreciation Schedule Year What is the Machine Book Value at the end of year 1 using Straigthline Method?. what is the Machine Book Value at the end of Year 2 using Straigthline Method?.

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1)Depreciation as per straight line method

Formula= (Purchase cost - salvage value)÷life of assets

So the depreciation per as per SLM is

($30000 - $2000)÷5

=$28000 ÷5

=$5600/- per year

Year Opening balance Addition Depreciation Balance
2017 0 $30000 1400 ( 5600÷12 ×for 3 month) 28600
2018 28600 0 5600 23000
2019 23000 0 5600 17400
2020 17400 0 5600 11800
2021 11800 0 5600 6200
2022 6200 0 4200(5600÷12 × 9 months) 2000

Machine book value at the end of year 1 =$24400

Machine book value at the end of 2nd year=$18800

Journal entries

1)Depreciation a/c_ dr 1400

To Machinery a/c _ cr 1400

(Depreciation charged to asset at end of 2017)

2) Depreciation a/c _dr. 5600

To Machinery a/c _cr. 5600

(Depreciation charged for 2018 at end)

2) Depreciation as per units of production method

Formula for depreciation expenses

={ ( Purchase cost- salvage value)÷ no.of units produced } × Units per year

However

Total units =300+2000+3000+2700+1200=9200

($30000 - $2000)÷9200 =3.0435

Year Opening Addition Units Dep. Exp Depreciation(units×Dep.exp) balance
1 0 30000 300 3.0435 913.05 29086.95
2 29086.95 0 2000 3.0435 6087 22999.95
3 22999.95 0 3000 3.0435 9130.5 13869.45
4 13869.45 0 2700 3.0435 8217.45 5652
5 5652 0 1200 3.0435 3652 2000

3.) Depreciation as per double decline method

Depreciation = depreciation % as per straight line method × 2 x Book value of asset at beginning.

% of SLM depreciation= depreciation as per SLM÷ Purchase cost

=5600 per year( calaculated in method 1st) ÷ 30000=18.67%

Rate=18.67% ×2 =37.34

Year opening addition Rate Depreciation (value × rate) Balance
1 0 30000 37.34 11202 18798
2 18798 0 37.34 7019.17 11778.83
3 11778.83 0 37.34 4398.2

7380.63

4 7380.63 0 37.34 2755.93 4624.7
5 4624.7 0 37.34 1726.86 2898