#61 On 1st April 2008 Abdulla installs new machinery costing
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#61 On 1st April 2008 Abdulla installs new machinery costing
On 1st April 2008, Abdulla installs new machinery costing SAR 312,000 with a five-year life and estimated salvage value of SAR28000. Management estimates that the machine will produce 1136000 units of the product during its lifetime. Actual units of production were as follows: 1st year 245600 units, 2nd year 230400 units, 3rd year 227000 units, 4th year 232600 units & 5th year 200400 units. Compute depreciation Expenses under the Straight-line method, Double declining balance method, and Units of Production Method method the machine must not be depreciated below its estimated salvage value.
A) Straight Line Method
Annual Depreciation by SLM = (312000-28000)/5
56,800
B) Calculation of depreciation by double declining balance method
SLM Depreciation Rate = 1 / 5 *100 = 20%.
Depreciation rate for Double Declining balance method = 20%*2 = 40%
C)Unit of Production method
Depreciation per unit of production = (312000-28000)/1136000 = $0.25
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Question
#61 On 1st April 2008 Abdulla installs new machinery costing
On 1st April 2008, Abdulla installs new machinery costing SAR 312,000 with a five-year life and estimated salvage value of SAR28000. Management estimates that the machine will produce 1136000 units of the product during its lifetime. Actual units of production were as follows: 1st year 245600 units, 2nd year 230400 units, 3rd year 227000 units, 4th year 232600 units & 5th year 200400 units. Compute depreciation Expenses under the Straight-line method, Double declining balance method, and Units of Production Method method the machine must not be depreciated below its estimated salvage value.
Answer
A) Straight Line Method
Annual Depreciation by SLM = (312000-28000)/5
56,800
| Year | Depreciation Expense |
| 1 | 56800 |
| 2 | 56800 |
| 3 | 56800 |
| 4 | 56800 |
| 5 | 56800 |
B) Calculation of depreciation by double declining balance method
SLM Depreciation Rate = 1 / 5 *100 = 20%.
Depreciation rate for Double Declining balance method = 20%*2 = 40%
| Year | Opening Carrying Value | Depreciation Expense | Carrying Value312,000 |
| 1 | 312,000 | 124,800 | 187,200 |
| 2 | 187,200 | 74,880 | 112,320 |
| 3 | 112,320 | 44,928 | 67,392 |
| 4 | 67,392 | 26,957 | 40,435 |
| 5 | 40,435 | 12,435 | 28,000 |
C)Unit of Production method
Depreciation per unit of production = (312000-28000)/1136000 = $0.25
| Year | Units of Production | Depreciation Expense | Carrying Value272000 |
| 1 | 245600 | 61400 | 250600 |
| 2 | 230400 | 57600 | 193000 |
| 3 | 227000 | 56750 | 136250 |
| 4 | 232600 | 58150 | 78100 |
| 5 | 200400 | 50100 | 28000 |
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