Squires Ltd purchased equipment for $90 000 on 1 July 2018. 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 2019 if 26 000 units were produced in that year?

Question

Quizplus · Accepted Answer

Depreciation per unit = (Cost of equipment - Salvage value) / Estimated total units
Salvage value is not given, so we assume it to be zero.
Depreciation per unit = ($90,000 - $0) / 200,000 units = $0.45 per unit
Depreciation expense for the year = Depreciation per unit x Number of units produced in the year
Depreciation expense for the year = $0.45 x 26,000 units = $11,700

Squires Ltd Purchased Equipment for $90 000 on 1 July