PROBLEM 3

Depreciation

Yara Company purchased a new machine on 1 September 2007, at a cost of $180,000. The machines estimated useful life at the time of the purchase was five years, and its residual value was $10,000. Yara adopts the cost model as its accounting policy in subsequently measuring its property, plant, and equipment.

Instructions

1. Prepare a complete depreciation schedule, beginning with calendar year 2007, under each of the methods listed below (assume that half-year convention is used):

1. Straight-line.
2. 200 per cent declining-balance.
3. 150 per cent declining-balance (not switching to straight-line).

2. Which of the three methods computed in part a is most common for financial reporting purposes? Explain