Chapter 11 E11-4
(LO 2,3)
(Depreciation Computation - Five Method)
Jon Seceda Furnace Corp purchased machinery for 315,000 on May 1, 2007.
It is
estimated that it will have a useful life of 10 yrs, salvage value of $15,000, production of 240,000 units
and working hours of 25,000.
During 2008, Seceda Corp uses the machinery of 2,650 hours and the machinery produces 25,500 units
Form the information given, compute the depreciation charge for 2008 under each of the following Methods (round to the neareth dollar)
a) Straight-line
b) Units - of - output
c) working hours
d) sum-of-the -years- digits
e) declining-balance (use 20 percent as the annual rate)
A) Straight - line
Cost less salvage
=
Depreciation Charge
EXERCISE 11-4
Estimated service life
$315,000 – $15,000 = $300,000; $300,000 ÷ 10 yrs. = $30,000
315,000-15,000=300,000
=
20,000
$300,000 ÷ 240,000 units = $1.25; 25,500 units X $1.25 = $31,875
15
$300,000 ÷ 25,000 hours = $12.00 per hr.; 2,650 hrs. X $12.00 = $31,800
B) Unit - of - output
(d)
n(n + 1)
=
10(11)
55
2
2
(cost less salvage) x hrs this year
=
Depreciation Charge
total estimated hours
10
X $300,000 X 1/3 =
$18,182
55
(315,000-15,000)x(2650)=795,000,000
31,800
25,000
9
X $300,000 X 2/3 =
32,727
55
C)
Working hours
Total for 2008
$50,909
D)
Sum-of-the-year-digits
(e)
$315,000 X 20% X 1/3 =
$21,000
300,000 x 10 / 55 = 54,545
54,545
33,600
e) declining-balance (use 20 percent as the annual rate)
Total for 2008
$54,600
$315,000 x .
.20 = 63,000
63,000
[May also be computed as 20% of ($315,000 – 2/3 of 20% of $315,000)]
10 + 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2
+ 1 = 55 OR
[$315,000 – ($315,000 X 20%)] X
20% X 2/3 =