A concrete and rock crusher for demolition work has been purchased for $, and it has an estimated SV of $ at the end of its five-year life. Engineers have estimated that the following units of production (in m3 of crushed material) will be contracted over the next five years. Using the units of production depreciation method, what is the depreciation allowance in year , and what is the BV at the end of year ?

Complete Question:

A concrete and rock crusher for demolition work has been purchased for $60,000, and it has an estimated SV of $10,000 at the end of its five-year life. Engineers have estimated that the following units of production (in m3 of crushed material) will be contracted over the next five years.

End of year    Year 1    Year 2   Year 3   Year 4   Year 5

m3                  16,000  24,000  36,000  16,000   8,000

Using the units of production depreciation method, what is the depreciation allowance in year three , and what is the BV at the end of year two?

a) Depreciation allowance in year three = $38,000

b) Book value at the end of year two = $40,000

Explanation:

a) Data and Calculations:

Cost of Equipment = $60,000

Salvage Value = $10,000

Depreciable amount = $50,000 ($60,000 - $10,000)

Useful life = 5 years

Total production units over 5 years = 100,000m3

Depreciation rate = $50,000/100,000 = $0.50

Year           Calculations          Depreciation  Depreciation    Book value

                                                    Expense    Allowance

Year one = 16,000 * $0.50 =      $8,000       $8,000               $52,000

Year two = 24,000 * $0.50 =    $12,000    $20,000               $40,000

Year three = 36,000 * $0.50 = $18,000    $38,000                $22,000

Year four = 16,000 * $0.50 =     $8,000    $46,000                 $14,000

Year five = 8,000 * $0.50 =       $4,000    $50,000                 $10,000

the answer should be a)