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What depreciation rate do you recommend

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Question - In Year 1, a business purchases a component machine for $250,000. The machine has a useful life of 8 years with an expected scrap value of $50,000. It is capable of operating up to 20 hours per day and produces 10 components per hour. However, the business only plans to use the machine for 88 hours per week (assume 52 weeks per year). The business uses straight-line depreciation.

a) What depreciation rate do you recommend?

b) What is the annual depreciation charge in year 1 and year 3? How much depreciation should be allocated to a single component in year 1?

In year 3, due to an unexpected and temporary lull in market demand, the machine only operated for 50 hours per week.

c) How should depreciation be handled in this year?

d) What was the written down value on the machine at the end of year 4?

Assume the machine was sold half way through year 5 for $157,000.

e) What was the gain or loss on disposal?

Reference no: EM132956932

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