Given: Initial Cost, P = $50,000 Salvage Value at the end of 5 years, S = $10,000. Depreciable Life. N = 5 Years Determine the depreciation in year 4 using the UOP method. Year Projected production units Actual production units1 4500 50002 5000 40003 3500 30004 5500 50005 6500 Not known Total 25000 A. $5, 600 B. $8,000 C. $4,000 D. $3, 200 If the equipment is sold at the end of year 4 for $30,000, what is the depreciation recapture on this equipment? A. $8, 400 B. $5, 600 C. $7, 200 D. $4,000

1. B. $8,000

2. C. $7,200

Explanation:

Units or production (UOP) method of depreciation bases the depreciation expense of a machine or equipment on how much it is actually used during the period.

depreciable value = $50,000 - $10,000 = $40,000

depreciation rate per unit = $40,000 / 25,000 = $1.60

Year          Projected Production units         Actual Production units

1                              4,500                                    5,000

2                             5,000                                    4,000

3                             3,500                                    3,000

4                             5,500                                    5,000

5                             6,500                                    Not known

Total                      25,000

depreciation expense year 4 = $1.60 x 5,000 = $8,000

accumulated depreciation year 4 = $1.60 x 17,000 = $27,200

book value = $50,000 - $27,200 = $22,800

if sold at $30,000, gain resulting from sale = $30,000 - $22,800 = $7,200

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