Question 2: Depreciation of Machinery In early July 2013 Admirable Ltd is considering the acquisition of some machinery
for $1200 000 plus GST to be used in the manufacture of a new product. The
machinery has a useful life of 10 years, during which management plans to produce
500 000 units of the new product. The residual value of the machinery is $100 000.
The following projections were made in order to select a depreciation method to be
used for the machinery: Year ended 30
June 2014
2015
2016
2017
2018 Unitsofoutpu
t 50 000
45000
55000
58000
60 000 Repai
rs and
maint $ 70000
60000
90000
95000
100000 Profit
befor
e $3500
3400
00
3550
00
3600
00
3800
00 In calculating the profit before depreciation, all expenses have been deducted,
including the repairs and maintenance expense.
Required
A. As the accountant for Admirable Ltd, prepare separate depreciation schedules for the machinery for the 5-year period, using the following depreciation methods: (a)
straight-line, (b) diminishing- balance, (c) sum-of-years-digits, and (d) units-ofproduction. Use the following headings for each schedule: 'Year ending 30
June', 'Annual depreciation expense', 'Accumulated depreciation', 'Carrying
amount at end of year'.
B. Prepare a report for management, stating the advantages and disadvantages of each depreciation method. Include in the report your recommendations on the choice of method
consistent with the requirements of IAS 16/AASB 116. Support your recommendations
with schedules showing the total annual cost of operating the machinery, and the profit
after depreciation 2

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