Comparing three depreciation methodsDexter Industries purchased packaging equipment on January 8 for$72,000. The equipment was expected to have a useful life of three years,or 18,000 operating hours, and a residual value of $4,500. The equipmentwas used for 7,600 hours during Year 1, 6,000 hours in Year 2, and 4,400 hours in Year 3. Instructions1. Determine the amount of depreciation expense for the three years ending December 31 by (a) the straight-line method, (b) the units-of-activity method, and (c) the double-declining-balance method. Alsodetermine the total depreciation expense for the three years by eachmethod. The following columnar headings are suggested for recordingthe depreciation expense amounts: Depreciation Expense Yesr Straight-line method Units-of-activity method Double-Declining-Balance methgod 2. What method yields the highest depreciation expense for Year 1?3. What method yields the most depreciation over the three-year life ofthe equipment?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Comparing three
Dexter Industries purchased packaging equipment on January 8 for
$72,000. The equipment was expected to have a useful life of three years,
or 18,000 operating hours, and a residual value of $4,500. The equipment
was used for 7,600 hours during Year 1, 6,000 hours in Year 2, and 4,400 hours in Year 3.
Instructions
1. Determine the amount of depreciation expense for the three years ending December 31 by (a) the straight-line method, (b) the units-of-
activity method, and (c) the double-declining-balance method. Also
determine the total depreciation expense for the three years by each
method. The following columnar headings are suggested for recording
the depreciation expense amounts:
| Depreciation Expense | |||
| Yesr | Straight-line method | Units-of-activity method | Double-Declining-Balance methgod |
2. What method yields the highest depreciation expense for Year 1?
3. What method yields the most depreciation over the three-year life of
the equipment?
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