Ayayai Company purchased a new machine on October 1, 2020, at a cost of $110,000. The company estimated that the machine will have a salvage value of $10,000. The machine is expected to be used for 10,000 working hours during its 4-year life.
I guess we need to calculate depreciation costs. We can use two methods: straight line depreciation and units of activity depreciation.
Straight line depreciation:
(purchase value - salvage value) / number of useful years = ($110,000 - $10,000) / 4 years = $100,000 / 4 years = $25,000 per year.
Units of activity depreciation:
(purchase value - salvage value) / total working hours = ($110,000 - $10,000) / 10,000 working hours = $100,000 / 10,000 working hours = $10 per working hour
