Depreciation Concepts As a cost accountant for San

Francisco Can
Depreciation Concepts As a cost accountant for San Francisco Cannery, you have been
approached by Phil Perriman, canning room supervisor, about the 2010 costs charged to his
department. In particular, he is concerned about the line item “depreciation.” Perriman is very
proud of the excellent condition of his canning room equipment. He has always been vigilant
about keeping all equipment serviced and well oiled. He is sure that the huge charge to
depreciation is a mistake; it does not at all reflect the cost of minimal wear and tear that the
machines have experienced over the last year. He believes that the charge should be
considerably lower. The machines being depreciated are six automatic canning machines. All
were put into use on January 1, 2010. Each cost $625,000, having a salvage value of $55,000
and a useful life of 12 years. San Francisco depreciates this and similar assets using double-
declining-balance depreciation. Perriman has also pointed out that if you used straight-line
depreciation the charge to his department would not be so great. Write a memo to Phil Perriman
to clear up his misunderstanding of the term “depreciation.” Also, calculate year-1 depreciation
on all machines using both methods. Explain the theoretical justification for double-declining-
balance and why, in the long run, the aggregate charge to depreciation will be the same under
both methods.View Solution:
Depreciation Concepts As a cost accountant for San Francisco Can
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