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Computing Depreciation under Alternative Methods

Published by admin at August 29, 2022
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  • Accounting
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  • Computing Depreciation under Alternative Methods

 

Strong Metals Inc. purchased a new stamping machine at the beginning of the year at a cost of $950,000. The estimated residual value was $50,000. Assume that the estimated useful life was five years and the estimated productive life of the machine was 300,000 units. Actual annual production was as follows:
Year Units
1 70,000
2 67,000
3 50,000
4 73,000
5 40,000
Required:
1. Complete a separate depreciation schedule for each of the alternative methods. Round your answers to the nearest dollar.
a. Straight-line.
b. Units-of-production (use two decimal places for the per unit output factor).
c. Double-declining-balance.
2. Assuming that the machine was used directly in the production of one of the products that the company manufactures and sells, what factors might management consider in selecting a preferable depreciation method in conformity with the expense recognition (matching) principle?

a. Straight-Line: The straight-line method of depreciation is the most commonly used and involves allocating a fixed cost over a period of time in equal amounts (Liaw & Young, 2019). In this case, the total cost is $950,000 with an estimated residual value of $50,000 meaning that there are $900,000 to be depreciated over 5 years resulting in an annual depreciation expense of $180,000 (Liaw & Young, 2019). This would result in the following depreciation schedule for Strong Metals Inc.

Year | Depreciation Expense| Book Value
1 |$ 180,000 |$770,000
2 |$ 180, 000|$590 ,00 0
3 |$ 180 ,00 0|410 ,00 04 |$ 1 80 ,0 00|230 ,0 00< br >5| $ 1 80 ,0 00|50 ,0 00

b. Units-of-Production: The units-of-production method allocates costs based on actual usage rather than time by determining a per unit output factor (Liaw & Young.,2019). In this example the expected productive life span was 300 000 units so the per unit output factor can be calculated as $3 ($900 000/ 300 000) (Liaw & Young.,2019). As such the yearly depreciation expenses could be determined as follows:
Year | Units Produced| Depreciation Expense |Book Value
1 70 000 ) 210 000 ) 660 0000 2 670000 203 0000 4570000 3 500000 150000 3070000 4 730000 2190000 880000 5 400000 120000 76 0000

c . Double Declining Balance : The double declining balance method calculates depreciation using twice the rate of straight line which enables it to accelerate deductions and reduce taxable income more quickly during earlier years before slowing down towards later years when assets may have less value (Li aw & amp ; Yo ung .2 01 9 ) .In this example that means multiplying 18 0 .0 00 times two or 36 0000 d ep reciation expe ns e each year until th e book va lue reaches its es timat ed resid ual value o f 50 000 afte r whi ch t he rest w ill b e de pre ciat ed straig ht line at 18 0 .00 0 annually res ultin g i n th e foll owing sc hedule : Year Depr ec iation Ex p ense B ook V alu e 1 360 00 0 5900000 2 360 0000 234 0000 3 3600000 102000 4 360 000000 50500 5 180 000000 33 500.

Restitution period is the another venture evaluation strategy which help to decide the genuine time expected to recuperate the speculation made in the undertaking. It is exceptionally gainful to the financial backers as they really need fast recuperation of their venture (Gotze, Northcott, and Schuster, 2016). Hence, it is for making a legitimate speculation examination through this strategy. Directors at Access Intelligence should find out the incomes that is normal from the item that the organization is creating and the venture required. The items which will give faster recuperation of the speculation sum should be contributed. The primary downside of this procedure doesn’t considers the part of time worth of cash.

 

Bookkeeping Rate of Return is one more venture examination method through which the supervisors at Access knowledge This specific strategy of speculation evaluation basically assists with assessing the profits that is normal from the undertaking by thinking about of the speculation expected in a task and incomes that is normal from an undertaking (Dyson, and Berry, 2014).

 

So basically, supervisors can involve differed methods of speculation examination for item that the Access knowledge are creating which assists with breaking down the venture’s capacity of getting monetary advantage from shifted viewpoints. So basically unique venture examination procedure assists in assessing the net money with streaming, some to decide the recuperation season of the underlying speculation and some strategy help to decree the return that is created from the item advancement. Hence supervisors should involve different speculation as talked about in above area before advancement of the items.

 

Viability of corporate Governance at Access Intelligence:

It is obvious from a top to bottom examination of the corporate administration of Access Intelligence that the organization isn’t following a most significant level of corporate administration. The corporate principles doesn’t follow the most noteworthy and the most persevering degree of corporate administration. The administration has advanced a reasoning for this, as Access Intelligence being an AIM organization, the association isn’t expected to follow the UK corporate Governance Code as ordered by the Financial Conduct Authority. The administration plainly expressed that that the gathering is simply dedicated to keep the corporate administration guideline according to it equivalent with its size. The utilization of the most extensive level of corporate administration ought to be high assuming that the organization will build the size of the organization. Since the organization’s administration is hesitant to put a compelling corporate administration component, it tends to be obviously expressed that administration isn’t willing to expand the size which is for sure a question of worry of the financial backers. So it tends to be properly expressed that corporate administration standards are not kept actually in the organization and in this manner most elevated guideline of corporate administration are not continued in the organization’s corporate framework (Wintoki, M.B., Linck, J.S. also, Netter, 2012).

 

It could likewise be examined that however there is appropriate board for taking pivotal choices and obligations and a few exceptional councils, for example, review panel, compensation council and designation council that has been comprised by the board for interior controls. According to the subtleties of the review board , it is obvious that review council just met double cross in the monetary year 2017 and just look at just monetary undertakings that too partially. The degree of obligations are simply restricted to interior controls, bookkeeping arrangements, consistence to the bookkeeping principles and arrangement of outer inspectors. In this manner is no legitimate system through which monetary misrepresentation could be forestalled and subsequently it tends to be expressed that the inward controls is likewise ineffectual to a huge degree. Corporate misrepresentation is mater of concern and the methods to manage corporate extortion isn’t as expected referenced in subtleties inside the corporate component of the organization. One of the main angle that should be called attention to that the there is no particular subtleties of autonomous chiefs that is available in the leading body of the Access Intelligence. This involves high worry as there might be serious level of abuse of abilities by the overseers of the organization.

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