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Can you please help me with this question.
A company uses the production units method to depreciate the machinery in its factory. A machine that cost $166,200 has an estimated residual value of $5,000 at the end of its six-year useful operating life.
Output from the machine is estimated at 124,000 units over the six years. 15% of the total output will be manufactured in each of Years 1, 2 and 3 with 20% of the total in Years 4 and 5.
What is the total depreciation of the machine in Year 4?I cannot imagine where you found this question, but it cannot be asked in Paper F2. (Depreciation is only relevant in Paper F3 and even there, this method cannot be asked!!).
However……in total they need to depreciate by 166,200 – 5,000 = 161,200.
The total estimated production is 124,000, and the depreciation will be 161,200/124,000 per unit produced, which is $1.30.In year 4, the produce 20% x 124,000 units = 24,800, and so the depreciation expense will be 24,800 x $1.30.
That is fine because Paper F3 is now called Paper FA, and depreciation is examinable in Paper FA (and is all explained in my free lectures, which is are complete free course for Paper FA and cover everything needed to pass the exam well.
You are commenting in the Paper MA forum. Paper MA used to be called Paper F2, and calculating depreciation is not examinable in Paper MA.
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