A machine with a cost of $120,000 has an estimated residual value of $15,000 and an estimated life of 5 years or 15,000 hours. it is to be depreciated by the units-of-output method. what is the amount of depreciation for the second full year, during which the machine was used 5,000 hours

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Business

Marco Hammond

1 December, 05:39

A machine with a cost of $120,000 has an estimated residual value of $15,000 and an estimated life of 5 years or 15,000 hours. it is to be depreciated by the units-of-output method. what is the amount of depreciation for the second full year, during which the machine was used 5,000 hours

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Louis Barrett · Answer 1

Through unit-of-output method, the formula for depreciation is determined as

Depreciation = (number of units sold/life of unit) (cost-salvage)

However, there is a missing value. The life of the unit is 5000 hours; the cost is $120,000; the salvage value or the residual value is $15000. There is no data for the number of machines produced in year 2. Technically, we cannot solve this problem. But let's assume it's 100,000 machines for sample purposes. Then,

Depreciation = (100,000/5000) (120,000-15,000)

Depreciation = $2,100,000 per hour