Heres the question.... :
Heres the question.... Lennon Company purchased a depreciable asset for $200,000. The estimated salvage value is $10,000, and the estimated useful life is 10,000 hours. Lennon used the asset for 1,100 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset?
Slide 3:
So basically when you see a question like that there are a few things you need to highlight and I am going to show them to you:
“Lennon Company purchased a depreciable asset for $200,000. The estimated salvage value is $10,000, and the estimated useful life is 10,000 hours. Lennon used the asset for 1,100 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset?”
So you should look for
Cost of asset
Salvage value/Residual Value
Useful life
Method of depreciation.
Working :
Working So the question is, what is the value of depreciation to be added in the Income Statement for the year?
Asset Cost : $200,000
Salvage value: $10,000
Estimated life span: 10,000hours
Current hours used: 1100hours
(Asset cost-salvage value)/estimated hours =
($200,000-$10,000)/10,000=
$190,000/10,000hrs= $19/hr
Hence the depreciation for this here is $19*1100hrs = $20,900
Summary :
Summary This type of depreciation is based on the usage of the machine, activity or units produced.
You should always take note of the fact that the accumulated depreciation is sent to the Statement of Financial position and the depreciation for the year is expensed to the income statement.