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25 December, 23:32

Compute the depreciation and book value each year of a machine that costs $67,000 topurchase and $3,000 to install with an 8-year life. Use the sum-of-years-digits method.

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  1. 26 December, 00:28
    0
    Depreciation Book Value

    for year after year

    $ $

    Year 1 - 15,556 54,444

    Year 2 13,611 40,833

    Year 3 11.667 29,667

    Year 4 9,722 19,444

    Year 5 7,778 11,667

    Year 6 5,833 5,833

    Year 7 3,889 1,944

    Year 8 1,944 0

    Explanation:

    Computation of yearly depreciation using sum of the years method

    Cost of equipment $ 67,000

    Installation cost $ 3,000

    Depreciable cost $ 70,000

    In a sum of the years method the mo of years are summed up and then depreciation is applied with the highest number first.

    Sum of the years = (1+2+3+4+5+6+7+8) = 36

    Depreciable basis $ 70,000

    Depreciation for year 1 = 8/36 * 70,000 $ (15,556)

    Book value after year 1 $ 54,444

    Depreciation for year 2 = 7/36 * 70,000 $ (13,611)

    Book value after year 2 $ 40,833

    Depreciation for year 3 = 6/36 * 70,000 $ (11,667)

    Book value after year 3 $ 29,667

    Depreciation for year 4 = 5/36 * 70,000 $ (9.722)

    Book value after year 4 $ 19,444

    Depreciation for year 5 = 4/36 * 70,000 $ (7,778)

    Book value after year 5 $ 11,667

    Depreciation for year 6 = 3/36 * 70,000 $ (5,833)

    Book value after year 6 $ 5,883

    Depreciation for year 7 = 4/36 * 70,000 $ (3,889)

    Book value after year 7 $ 1,944

    Depreciation for year 8 = 1/36 * 70,000 $ (1,944)

    Book value after year 8 $ 0
  2. 26 December, 02:44
    0
    Year 1: Depreciation expense = $15,556

    Year 2: Depreciation expense = $13,611

    Year 3: Depreciation expense = $11,667

    Year 4: Depreciation expense = $9,722

    Year 5: Depreciation expense = $7,778

    Year 6: Depreciation expense = $5,833

    Year 7: Depreciation expense = $3,889

    Year 8: Depreciation expense = $1,944

    Explanation:

    Step 1: Calculation of machine depreciable cost

    Depreciable cost of machine = $67,000 + $3,000 = $70,000

    Step 2: Calculation of sum of the year's digit

    Sum of the year's digit = (1 + 2 + 3 + 4 + 5 + 6 + 7 + 8) = 36

    Step 3: Computation of depreciation

    The following formula will be used:

    Depreciation expenses = (Remaining useful asset life : Sum of the year's digit) * machine depreciable cost

    Net book value for the current year = Net book value for the previous year - Depreciation expenses for the current year

    The calculation now proceeds as follows:

    Machine depreciable cost = $70,000

    Year 1: Depreciation expense = [ (8 : 36) * 70,000) = $15,556

    Year 1: Net book value = $70,000 - $15,556 = $54,444

    Year 2: Depreciation expense = [ (7 : 36) * 70,000) = $13,611

    Year 2: Net book value = $54,444 - $13,611 = $40,833

    Year 3: Depreciation expense = [ (6 : 36) * 70,000) = $11,667

    Year 3: Net book value = $40,833 - $11,667 = $29,667

    Year 4: Depreciation expense = [ (5 : 36) * 70,000) = $9,722

    Year 4: Net book value = $29,667 - $9,722 = $19,444

    Year 5: Depreciation expense = [ (4 : 36) * 70,000) = $7,778

    Year 5: Net book value = $19,444 - $7,778 = $11,667

    Year 6: Depreciation expense = [ (3 : 36) * 70,000) = $5,833

    Year 6: Net book value = $11,667 - $5,833 = $5,833

    Year 7: Depreciation expense = [ (2 : 36) * 70,000) = $3,889

    Year 7: Net book value = $5,833 - $3,889 = $1,944

    Year 8: Depreciation expense = [ (1 : 36) * 70,000) = $1,944

    Year 8: Net book value = $1,944 - $1,944 = $0

    It can be seen that the asset becomes fully depreciated and its value become zero after year 8.
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