Equipment purchased at the beginning of the fiscal year for $360,000 is expected to have a useful life of 5 years, or 14,000 operating hours, and a residual value of $10,000. Compute the depreciation for the first and second years of use by each of the following methods: (a) straight-line (b) units-of-production (1,200 hours first year; 2,250 hours second year) (c) declining-balance at twice the straight-line rate

(a) $70,000

(b)  $30,000

(c) $144,000

Explanation:

Straight-line Method:

Straight line Depreciation = (Cost - Scrap Value) /  Useful life

By putting values, we have:

Straight line Depreciation = ($360,000 - $10,000) / 5 Years = $70,000 per year

Units-of-production Method:

Units Production Depreciation = (Cost - Scrap Value) * Hours Worked / Total Hours worked

Units Production Depreciation = $360,000 * 1,200 Hours / 14,000 Hours

= $30,000 per year

Double Declining Method:

Double declining Depreciation = 2 * Cost / Useful Life

By putting values, we have:

Double declining Depreciation = 2 * $360,000 / 5 Years

Double declining Depreciation = $144,000 per year

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