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Calculate depreciation in four different methods

Limestone Construction purchased a concrete mixer on July 15, 2011. Company officials revealed the following information regarding this asset and its acquisition:

Purchase price....................$210,000

Residual value...................................$20,000

Estimated useful life...................................9 years

Estimated service hours...................................50,000

Estimated production in units.......................................375,000 yards

The concrete mixer was operated by construction crews in 2011 for a total of 6,500 hours, and it produced 49,500 yards of concrete.

It is company policy to take a half-year's depreciation on all assets for which it used the straight-line or duble-decllining balance depreciation method in the year of purchase.

Calculate the resulting depreciation expense for 2011 under each of the following methods, and specify which method allows the greatest depreciation expense.

1) Double-declining balance
2) Productive output
3) Service hours
4) Straight-line.

Solution Preview

1) Double-declining balance

In the double declining balance method, depreciation is calculated as
Opening book value X 2/useful life
For 2011, the opening book value will be the cost of asset which is $210,000. The useful life is 9 years
Depreciation = 210,000 X 2/9 = 46,667. It is mentioned that in the year of purchase, ...

Solution Summary

The solution explains the calculation of depreciation expense under different depreciation methods

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