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Shauriwako Company purchases a factory machine at cost $18,000 on January 1, 2012. The
macine is expected to have a salvage value or residue value of $2,000 at the end of 4-year useful
life.
During its useful life, the machine is expected to be used 160,000 hours. Actual annual hourly us
was:
Year 1…….40,000
Year 2…….60,000
Year 3…….35,000
Year 4…….25,000
Instructions:
Prepare depreciation schedules for the following methods:
a) The straight line
b) Units of activity
c) Double decline on straight line
d) Sum of the years’ digits
Solutions:
a) Straight Line Depreciation
Dep = Original cost – Salvage Value = $18,000 - $2,000 = $0.10 per hour
Estimated activity 160,000 hours
100 X 2 = 50%
4
Year 1 = 4
10
Year 2 = 3
10
Year 3 = 2
10
Year 4 = 1
10