On January 1, 2018, Luis SA, a small machine-tool manufacturer, acquired for R$1,260,000 a piece of new industrial equipment. The new equipment had a useful life of 5 years, and the residual value was estimated to be R$60,000. Luis estimates that the new equipment can produce 12,000 machine tools in its first year and 50,000 units over its life. It estimates that production will decline by 1,000 units per year over the remaining useful life of the equipment.
The following depreciation methods may be used: (1) straight-line, (2) double-declining-balance, (3) sum-of-the-years'-digits, and (4) units-of-output.
Instructions
Which depreciation method would maximize net income for financial statement reporting for the 3-year period ending December 31, 2020? Prepare a schedule showing the amount of accumulated depreciation at December 31, 2020, under the method selected. (Ignore present value, income tax, and deferred income tax considerations.)