Slide9-11Straight-Line DepreciationDepreciationCost -Residual ValueExpenseperYearLifeinYears
Slide 9-11 Cost - Residual Value Life in Years Depreciation Expense per Year = Straight-Line Depreciation
SlideDepreciation - Method of Cost9-12AllocationMethods of DepreciationThe profession requires the method employed besystematic and rational."Examples include:(1)Activitymethod (units of useor production)(2)Straight-line method.(3)Sum-of-the-years'-digitsAcceleratedmethods(4)Declining-balance method
Slide 9-12 Depreciation - Method of Cost Allocation The profession requires the method employed be “systematic and rational.” Examples include: Methods of Depreciation (1) Activity method (units of use or production). (2) Straight-line method. (3) Sum-of-the-years’-digits. (4) Declining-balance method. Accelerated methods
SlideDepreciation-MethodofCost9-13AllocationExercise (Depreciation Computations-Four Methods)RobertParish Corporation purchased a new machine for its assemblyprocess on September 30,2007.The cost of this machine was$117,900. The company estimated that the machine would havea salvage value of $12,900 at the end of its service life.Itslife is estimated at 5 years and its working hours are estimatedat 1,000 hours.Year-end is December31.Instructions: Compute the depreciation expense under thefollowing methods(a)Straight-linedepreciation(b)Activitymethod()Sum-of-the-years'-digits(d)Double-declining balance
Slide 9-13 Depreciation - Method of Cost Allocation Exercise (Depreciation Computations—Four Methods) Robert Parish Corporation purchased a new machine for its assembly process on September 30, 2007. The cost of this machine was $117,900. The company estimated that the machine would have a salvage value of $12,900 at the end of its service life. Its life is estimated at 5 years and its working hours are estimated at 1,000 hours. Year-end is December 31. Instructions: Compute the depreciation expense under the following methods. (a) Straight-line depreciation. (b) Activity method. (c) Sum-of-the-years’-digits. (d) Double-declining balance
Slide9-14Depreciation - Method of CostAllocationExercise(Straight-line Method)CurrentAnnualDepreciablePartialYearAccum.YearYearsBaseExpenseYearExpenseDeprec512007$ 105,000$ 21,0003/12= $5,250$ 5,250=X52008105,000/=21,00021,00026,25052009105,000121,00021,00047,250=52010105,000121,00021,00068,250=5-2011105,00089,25021,00021,000=5/2012105,0009/12=21,00015,750105,000x$ 105,000Journal entry:5,2502007Depreciation expense5,250Accumultated depreciation
Slide 9-14 Depreciation - Method of Cost Allocation Exercise (Straight-line Method) Current Depreciable Annual Partial Year Accum. Year Base Years Expense Year Expense Deprec. 2007 $ 105,000 / 5 = $ 21,000 x 3/12 = $ 5,250 $ 5,250 2008 105,000 / 5 = 21,000 21,000 26,250 2009 105,000 / 5 = 21,000 21,000 47,250 2010 105,000 / 5 = 21,000 21,000 68,250 2011 105,000 / 5 = 21,000 21,000 89,250 2012 105,000 / 5 = 21,000 x 9/12 = 15,750 105,000 $ 105,000 Journal entry: 2007 Depreciation expense 5,250 Accumultated depreciation 5,250
Slide9-15Depreciation - Method of CostAllocationExercise(ActivityMethod)($105,000 / 1,000 hours = $105 per hour)(Given)CurrentHoursAnnualPartialYearRateperAccum.YearUsedHoursYearExpenseExpenseDeprec.$2007200$105$ 21,00021,000x$ 21,000二150105200815,75015,750x36,750=250200910526,25026,25063,000xI201030010531,50031,50094,500x=201110010510,50010,500105,000x=1,000$ 105,000Journal entry:200721,000Depreciationexpense21,000Accumultateddepreciation
Slide 9-15 Depreciation - Method of Cost Allocation Exercise (Activity Method) ($105,000 / 1,000 hours = $105 per hour) (Given) Current Hours Rate per Annual Partial Year Accum. Year Used Hours Expense Year Expense Deprec. 2007 200 x $105 = $ 21,000 $ 21,000 $ 21,000 2008 150 x 105 = 15,750 15,750 36,750 2009 250 x 105 = 26,250 26,250 63,000 2010 300 x 105 = 31,500 31,500 94,500 2011 100 x 105 = 10,500 10,500 105,000 1,000 $ 105,000 Journal entry: 2007 Depreciation expense 21,000 Accumultated depreciation 21,000