Bookkeeping 35. Dep

Question 1

1. Some machines become less useful as they are used. The usefulness of a truck is more a function of miles traveled than of age. What is a depreciation method that accounts for this?

Answer 1

UNITS OF PRODUCTION METHOD.

Question 2

2. What is the formula for the UNITS OF PRODUCTION method?

Answer 2

1. Deduct the SALVAGE VALUE.
2. Divide the PURCHASE PRICE by the number of units thought to be the best indicator of usefulness (mileage, hours of operation, etc).

Question 3

3. A machine used to stamp out steel parts is ESTIMATED to be capable of stamping out 4k parts before becoming useless. It cost 81k and salvage value is 1k.
   It stamped 1k units this year; the UNITS OF PRODUCTION METHOD depreciation is:

Answer 3

($81k - $1k / 4000) X 1000 = $20,000

Question 4

4. What is done with the FINAL VALUE (remaining amount) left after the last year of depreciation under the UNITS OF PRODUCTION method?

Answer 4

As with the DECLINING BALANCE METHOD, the FINAL VALUE would be ADJUSTED to equal the RESIDUAL VALUE that was originally estimated.