UOP Method

To support a road construction project, the management decides to install at the site a concrete mixer for an initial cost of $35,000. At the end of the construction period of 5years the machine is likely to be sold for $3,000. The annual concrete needs during the 5 years are: 300, 400, 800, 200, and 100 tons. Prepare the mixer’s depreciation schedule based on the UOP method, as well as its book values.

Question

UOP Method

To support a road construction project, the management decides to install at the site a concrete mixer for an initial cost of $35,000. At the end of the construction period of 5years the machine is likely to be sold for $3,000. The annual concrete needs during the 5 years are: 300, 400, 800, 200, and 100 tons. Prepare the mixer’s depreciation schedule based on the UOP method, as well as its book values.

Accepted Answer

It is given that:

[latex]P - S =\$35,000-\$3,000[/latex]

[latex]=\$32,000[/latex]

We need to know the lifetime use of the mixer to prorate P-S on the basis of annual use.

Adding the needs of the 5 years

Total usage = 300+400+800+200+100

=1,800

Thus,

Year	Initial Cost (P)	Salvage Value (S)	(P-S)	Usage (tons)	Total Usage (tons )	Yearly Depr.	Formulas
1	$35,000	$3,000	$32,000	$300	$1,800	$5,333	=E2/F2*D2
2			$32,000	$400	$1,800	$7,111	=E3/F3*D3
3			$32,000	$800	$1,800	$14,222	=E4/F4*D4
4			$32,000	$200	$1,800	$3,556	=E5/F5*D5
5			$32,000	$100	$1,800	$1,778	=E6/F6*D6

The depreciation schedule for the mixer is a summary of the above charges in a table, as follows. Check that the total depreciation equals P-S ($32,000), confirming the accuracy of the results .

Year	Depreciation
1	$ 5,333
2	$ 7,111
3	$14,222
4	$ 3,556
5	$ 1,778
Total Depr:	$32,000

The year-end book values can be determined by subtracting the yearly depreciation from the beginning book values, as shown as follows. The last year’s (fifth year) book value of $3,000 being equal to the salvage value offers another check on the accuracy of results.

Year	Beginning BV	Yearly Depr	Ending BV	Formulas
1	$35,000	$5,333	$29,667	=B2-C2
2	$29,667	$7,111	$22,556	=B3-C3
3	$22,556	$14,222	$8,333	=B4-C4
4	$8,333	$3,556	$4,778	=B5-C5
5	$4,778	$1,778	$3,000	=B6-C6
	total :	$32,000

Question 10.8: UOP Method To support a road construction project, the manag...

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