Linda’s Chocolate Factory decided to expand its business and bought a new machine on 1 January 2021 for $26,000. Other
Posted: Thu May 19, 2022 3:51 pm
Linda’s Chocolate Factory decided to expand its business and
bought a new machine on 1 January 2021 for $26,000. Other
costs incurred were transport cost (from Sydney to Melbourne) $900
and insurance cost of $400 during the transportation.
The initial Machine Operator training cost is $1,200 whereas the
ongoing Operator training refresher, held every 6 months is
$600
The useful life of the machine was estimated to be four years
(or 5,000 units of production) while the residual value was $3,000.
The machine was used to produce 1,300 units in the first year
1,700 units in the second year, 1,600 units in the third and 400
units in the fourth year. The depreciation rate under the reducing
balance method equals to 2x straight line rate.
Requirement 1.
Which depreciation method is the preferred method for Linda’s
Chocolate Factory for taxation purposes? Does the total
depreciation expense recorded over the entire useful life of the
machine (i.e. over the four years) differ under different
depreciation method?
Requirement 2.
Calculate the total cost of the new machine as well as its
accumulated depreciation and carrying amount at the end of the
second year under the units of production method
bought a new machine on 1 January 2021 for $26,000. Other
costs incurred were transport cost (from Sydney to Melbourne) $900
and insurance cost of $400 during the transportation.
The initial Machine Operator training cost is $1,200 whereas the
ongoing Operator training refresher, held every 6 months is
$600
The useful life of the machine was estimated to be four years
(or 5,000 units of production) while the residual value was $3,000.
The machine was used to produce 1,300 units in the first year
1,700 units in the second year, 1,600 units in the third and 400
units in the fourth year. The depreciation rate under the reducing
balance method equals to 2x straight line rate.
Requirement 1.
Which depreciation method is the preferred method for Linda’s
Chocolate Factory for taxation purposes? Does the total
depreciation expense recorded over the entire useful life of the
machine (i.e. over the four years) differ under different
depreciation method?
Requirement 2.
Calculate the total cost of the new machine as well as its
accumulated depreciation and carrying amount at the end of the
second year under the units of production method