A machine is purchased January 1 at a cost of $59,000. It is expected to produce 130,000 units and have a salvage value of $3,000 at the end of its useful life. Units produced are as follows: Year 1 10,000 Year 2 8,000 Year 3 12,000 Year 4 16,000 Year 5 11,000 Required: Prepare a schedule showing depreciation for each year and the book value at the end of each year using the units-of-production method (round calculations to two decimal places).
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.
Units-of-Production Method
A machine is purchased January 1 at a cost of $59,000. It is expected to produce 130,000 units and have a salvage value of $3,000 at the end of its useful life.
Units produced are as follows:
| Year 1 | 10,000 |
| Year 2 | 8,000 |
| Year 3 | 12,000 |
| Year 4 | 16,000 |
| Year 5 | 11,000 |
Required:
Prepare a schedule showing depreciation for each year and the book value at the end of each year using the units-of-production method (round calculations to two decimal places).
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