Squires Ltd purchased equipment for $90 000 on 1 July 2015.It had an estimated life of 200 000 units.The machine was depreciated using the units of production method.The financial period of Squires Ltd ends on 30 June.What was the depreciation expense for year ended 30 June 2016 if 26 000 units were produced in that year?

Question

Quizplus · Accepted Answer

The first step is to calculate the depreciation rate per unit:
Depreciation rate = (Cost of equipment - Estimated salvage value) / Estimated total units of production
Depreciation rate = ($90,000 - $0) / 200,000 = $0.45 per unit

Next, we can calculate the depreciation expense for the year ended 30 June 2016 using the units produced in that year:
Depreciation expense = Depreciation rate x Units produced in the year
Depreciation expense = $0.45 x 26,000 = $11,700

Therefore, the depreciation expense for the year ended 30 June 2016 is $11,700, which is represented by choice B.

Squires Ltd Purchased Equipment for $90 000 on 1 July