On October 1, 2021, the Allegheny Corporation purchased equipment for $278,000. The estimated service life of the equipment is 10 years and the estimated residual value is $3,000. The equipment is expected to produce 550,000 units during its life.

Calculate depreciation for 2021 and 2022 using each of the following methods. Partial-year depreciation is calculated based on the number of months the asset is in service.

1. Straight line.

2. Sum-of-the-yearsâ-digits.

3. Double-declining balance.

2021 2022

1. Straight line $27,500 $27,500

2. Sum-of-the-years-digits $50,000 $45,000

3. Double-declining balance $$55,600 $44,480

Explanation:

1.

Straight Line depreciation is a method of depreciation in which the cost of the asset net of residual value is divided over useful life.

To calculate the depreciation we use following formula

Depreciation = (Cost of Asset - Salvage Value) / Useful life

Placing values in the formula

Depreciation = ($278,000 - $3,000) / 10 years = $27,500

2.

In sum of years digits we add the all the digits up to the maturity period of asset and calculate the ratio / percentage of each year to the depreciable amount of asset

Depreciable value of asset = $278,000 - $3,000 = $275,000

useful life = 10 years

Sum of Digits = 1+2+3+4+5+6+7+8+9+10 = 55

another method

Sum of Digits = n (n + 1) / 2 = 10 (10 + 1) / 2 = 55

2021

Total useful life remaining = 10 years

Depreciation = $275,000 x 10/55 = 50,000

2022

Total useful life remaining = 9 years

Depreciation = $275,000 x 9/55 = 45,000

3.

Double declining method

The Accelerated depreciation is charged in this method. The depreciation charged in this method is double of the charged in straight-line depreciation method.

Depreciation rate = 2 x (1/useful life) x100 = 2 x (1/10 years) x100 = 20%

2020

Depreciation = Depreciable Value x 20% = $278,000 x 20% = $55,600

2021

Carrying Value = 278,000 - $55,600 = 222,400

Depreciation = Carrying Value x 20% = $222,400 x 20% = $44,480