Question
Valmont Limited purchased equipment on March 31, 2021, at a cost of $244,000. Management is considering the merits of using the diminishing-balance or units-of-production method
Valmont Limited purchased equipment on March 31, 2021, at a cost of $244,000. Management is considering the merits of using the diminishing-balance or units-of-production method of depreciation instead of the straight-line method, which it currently uses for its equipment. The new equipment has an estimated residual value of $4,000 and an estimated useful life of either four years or 80,000 units. Demand for the products produced by the equipment is sporadic so the equipment will be used more in some years than in others. Assume the equipment produces the following number of units each year: 14,800 units in 2021; 20,400 units in 2022; 19,800 units in 2023; 20,000 units in 2024; and 5,000 units in 2025. Valmont has a December 31 year end. Instructions a) Prepare separate depreciation schedules for the life of the equipment using (1) the straight-line method; (2) the double-diminishing-balance method; and (3) the units-of-productions method. (18 marks) b) Which method would you recommend? Why? (2 marks)
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