The Donovan Medical Centre purchased a new surgical laser for $64,000. The estimated residual value is $4,000. The laser has a useful life of six years and the clinic expects to use it 10,000 hours. It was used 1,600 hours in year 1; 2,100 hours in year 2; 2,400 hours in year 3; 1,400 hours in year 4; 2,000 hours in year 5; 500 hours in year 6.
Instructions:
(a) Calculate the annual depreciation for each of the six years under each of the following methods:
(1) straight-line
(2) units-of-production (service).
(b) If you were the administrator of the clinic, which method would you select as the most appropriate? Justify your answer.
(c) Which method would result in the lowest reported profit in the first year? Which method would result in the lowest total reported profit over the six-year period?

Question

The Donovan Medical Centre purchased a new surgical laser for $64,000. The estimated residual value is $4,000. The laser has a useful life of six years and the clinic expects to use it 10,000 hours. It was used 1,600 hours in year 1; 2,100 hours in year 2; 2,400 hours in year 3; 1,400 hours in year 4; 2,000 hours in year 5; 500 hours in year 6.
Instructions:
(a) Calculate the annual depreciation for each of the six years under each of the following methods:
 (1) straight-line
 (2) units-of-production (service).
(b) If you were the administrator of the clinic, which method would you select as the most appropriate? Justify your answer.
(c) Which method would result in the lowest reported profit in the first year? Which method would result in the lowest total reported profit over the six-year period?

Quizplus · Accepted Answer

The Answer of The Donovan Medical Centre purchased a new surgical laser for $64,000. The estimated residual value is $4,000. The laser has a useful life of six years and the clinic expects to use it 10,000 hours. It was used 1,600 hours in year 1; 2,100 hours in year 2; 2,400 hours in year 3; 1,400 hours in year 4; 2,000 hours in year 5; 500 hours in year 6.
Instructions:
(a) Calculate the annual depreciation for each of the six years under each of the following methods:
 (1) straight-line
 (2) units-of-production (service).
(b) If you were the administrator of the clinic, which method would you select as the most appropriate? Justify your answer.
(c) Which method would result in the lowest reported profit in the first year? Which method would result in the lowest total reported profit over the six-year period?

The Donovan Medical Centre Purchased a New Surgical Laser for $64,000