Question
E93 Cirrus Ltd. purchased a new machine on April 4, 2014, at a cost of $172,000. Th e company estimated that the machine would have
E93 Cirrus Ltd. purchased a new machine on April 4, 2014, at a cost of $172,000. Th e company estimated that the machine would have a residual value of $16,000. Th e machine is expected to be used for 10,000 working hours during its four-year life. Actual machine usage was 1,500 hours in 2014; 2,200 hours in 2015; 2,300 hours in 2016; 2,100 hours in 2017; and 1,900 hours in 2018. Cirrus has a December 31 year end. Instructions
(a) Calculate depreciation for the machine under each of the following methods: (1) straight-line, (2) diminishing- balance using double the straight-line rate, and (3) units-of-production for 2014 through to 2018.
(b) Which method results in the highest depreciation expense over the life of the asset? Highest net income? Highest cash fl ow?
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