Reference no: EM133159047

Question - Media Inc. has recently purchased a new machine for a price of € 119,000 including 19% of VAT. Additionally it incurred € 10,000 for transportation, € 5,000 for special staff training related to the new machine, € 7,000 in import duties and € 3,000 for a new concrete foundation in its factory that was necessary due to the weight of the new machine. Scrap value is expected to be € 20,000 (net of any costs of removal). Total production capacity is expected to be 500,000 units over its useful life of 10 years. The question assumes that management follows financial reporting practice and excludes training costs from the book value of equipment in accordance with GAAP.

a) Initial book value of the machine at time of purchase: 120,000

b) Depreciable amount of the new machine: 100,000

c) Book value after 10 years: 20,000

d) Please calculate the depreciation according to the usage-based method for the second year if units produced are expected to be 75,000 units p.a. for the first 3 years.

e) The annual depreciation rate needed to arrive at the scrap value of € 20,000 after the 10 years of useful life when applying the declining balance method: 16%

f) Please calculate the amount of depreciation resulting from the rate calculated under h) for the first year under the declining-balance method. (Round to the full €.)

g) According to the Sum-of-the-years-digits method, please calculate the percentage of total depreciation to be accounted for in year 1. (Round to the full percentage.)

h) Please calculate the amount of depreciation according the Sum-of-the-years-digits method for year 2. (Round to the full €.)