Accounting ? straight-line, units-of-production , declining-balance at twice the straight-line rate?

Equipment purchased at the beginning of the fiscal year for $150,000 is expected to have a adjectives life of 5 years, or 15,000 operating hours, and a residual value of $30,000. Compute the depreciation for the FIRST and SECOND years of use by respectively of the following methods:

a) straight-line
b) units-of-production (2,500 hours first year, 3,250 hours second year)
c) declining-balance at twice the straight-line rate
Answers:
a) straight-line
Cost $150,000
less residual value of $30,000
Depreciable stub $120,000 over 5 yrs = $24,000 each yr.
1st yr $24,000
2nd yr $24,000

b) units-of-production (2,500 hours first year, 3,250 hours second year)
Depreciable base $120,000 over 15,000 operating hours = $8 an hr
1st yr 2,500 hours x $8 =$20,000
2nd yr 3,250 hours x $8 = $26,000

c) declining-balance at twice the straight-line rate
When using this method, you don't clear use of the depreciable cost. Straight-line rate for 5 yrs is 20%, so double declining balance method is 40%
Cost $150,000
1st yr depreciation $60,000 ($150k x 40%)
Nbv at closing of 1st yr 90,000
2nd yr depreciation $36,000 ($90k x 40%)

Note : an important general rule for DDB -- salvage meaning is initially ignored, but once accumulated depreciation reach the amount of the depreciable base, then depreciation cease. Source(s): http://www.principlesofaccounting.com/ch…

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