Straight-line

Exercise 1.

Company F purchased a machine that cost Rs.50,000 and will last 5 years. A salvage value was

not assigned to the asset. Determine the annual depreciation expense using the straight-line

method and prepare the journal entry to record the expense.

Solution : 50,000 / 5 years = Rs.10,000 per year

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Exercise 2.

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Company Q purchased a piece of equipment that cost Rs.250,000 on January 1, 2011. The
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equipment will last 8 years and have a residual value of Rs.10,000. On October 1, 2011, the

company purchased another piece of equipment identical to the first. Calculate the depreciation
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expense for 2011 for each piece of equipment.

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First piece of equipment: (250,000 – 10,000) / 8 years = 30,000 expense for 2011
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Second piece of equipment: (250,000 – 10,000) / 8 years = 30,000 for all of 2011

However, equipment was acquired on October 1, so it was used for 3 months in 2011:
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30,000 x 3 months / 12 months = 7,500 for 2011

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 Unit Production

Exercise 1.

Company F purchased a machine that cost Rs.50,000 and will be able to produce 500,000 units

of product before wearing out. Expected production by year will be: year 1 – 80,000 units; year 2

– 100,000; year 3 – 100,000; year 4 – 110,000 and year 5 – 110,000. A salvage value was not

assigned to the asset. Determine the annual depreciation expense using the units-of-production

method and prepare the journal entry to record the expense.

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Solution : Rs.50,000 / 500,000 units = Rs..10 per unit

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.10 x 80,000 units produced = Rs.8,000 depreciation expense for year 1

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Exercise 2.

A company purchased machinery that cost Rs.510,000. It is estimated that the machine will be
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operated for 100,000 hours over its useful life and have a residual value of Rs.10,000.
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Required:

a) What is the rate of depreciation per hour?

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b) Journalize the entry for annual depreciation if the machine had been operated for 22,000

hours.
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a. (510,000 – 10,000) / 100,000 hours = Rs.5 per hour

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b. 22,000 hours for the year * Rs.5 per hour = Rs.110,000

Depreciation Expense 110,000

Accumulated Depreciation 110,000

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 Declining Balance Method

Exercise 1.

Company F purchased a machine that cost Rs.50,000 and will last 5 years. A salvage value was

not assigned to the asset. Determine the annual depreciation expense using the declining balance

method and prepare the journal entry to record the expense.

Year Beginning Depreciation Depreciation Ending Accumulated

book value rate expense book value depreciation

1 50,000 40% 20,000 30,000 20,000

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2 30,000 40% 12,000 18,000 32,000

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3 18,000 40% 7,200 10,800 39,200

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4 10800
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5 5,680 40% 2,272 3,408 47,152
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Depreciation Expense-Machinery 20,000

Accumulated Depreciation- Machinery 20,000

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Exercise 2.
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Purchased equipment for Rs.70,000. This equipment has a 5 year life and an Rs.8,000 residual
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value. Calculate depreciation for each of the five years using the declining balance method at

twice the straight-line rate.

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Straight-line rate = 1/5 or 20%; Declining Rate = 40% Maximum Depreciation allowed =

Rs.62,00

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 Year Beginning Depreciation Depreciation Ending Accumulated

book value rate expense book depreciation

value

1 70,000 40% 28,000 42,000 28,000

2 42,000 40% 16,800 25,200 44,800

3 25,200 40% 10,080 15,120 54,880

4 15,120 40% 6,048 9,072 60,928

*5 * 9,072 40% 1,072 8,000 62,000

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*In Year 5, the asset may not be depreciated beyond its residual value. That is, the net book

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value may not be less than the residual value. Applying the double declining balance method in
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year 5 calculates an expense of (70,000 – 60,928) * 40% = Rs.3,628.80 which reduces the book
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value below the residual value.

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Exercise 3
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A company purchased a machine that cost Rs.100,000. The machine is expected to last 4 years
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and has a residual value of Rs.7,000. Calculate the depreciation expense to be recorded each year

under the declining balance method.

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