On January 1, 2020, Rasmus Mining Ltd. purchased new mining equipment costing $386,000, which will be depreciated
Question:
On January 1, 2020, Rasmus Mining Ltd. purchased new mining equipment costing $386,000, which will be depreciated on the assumption that the equipment will be useful for four years and have a residual value of $28,000 when the company is finished using it. The estimated output from this equipment, in tonnes, is as follows: 2020—102,400; 2021—32,200; 2022—97,300; 2023—54,500. The company is now considering possible methods of depreciation for this asset.
Required
a. Calculate what the depreciation expense would be for each year of the asset’s life, if the company chooses:
i. The straight-line method
ii. The units-of-production method
iii. The double-diminishing balance method
b. Briefly discuss the criteria that a company should consider when selecting a depreciation method.
Step by Step Answer:
Understanding Financial Accounting
ISBN: 9781119406921
2nd Canadian Edition
Authors: Christopher D. Burnley