Chapter 10 4 marks

(1)

A Construction Company purchased a new Crane for $360,500 at the beginning of year 1.

The Crane has an estimated useful life of six years (round to nearest dollars where necessary) and an estimated Residual Value of $35,000.

The Crane is expected to last 10,000 hours. It was used:

1,800 hours in year 1;

2,000 hours in year 2;

2,500 hours in year 3;

1,500 hours in year 4;

1,200 hours in year 5;

1,000 hours in year 6.

(a)

Compute the Annual Depreciation and Carrying Value for the new Crane for Year 2 assuming the following Depreciation methods:

(a) The Straight-line Method;

(b) The Production Method;

(b)

Using T-accounts record the Depreciation calculated for the Crane under the Production Method for Year 2;

(c)

Show the Balance Sheet fragment presentation for the Crane using the Production Method at the end of year 2;

(2) For an extra mark!

In accounting depreciation refers to:

1. an assets physical deterioration
2. the allocation of an assets cost
3. an assets obsolescence
4. the decline in value of an asset