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Skye Enterprises purchased Machine no. 200 on July 1, 2020. The following information related to Machine no. 200 was gathered at the end of June:

Price $170,000

Credit Terms 2% net 10 days, 0% net 30 days

Freight costs $ 1,600

Preparation & Installation $ 7,600

Labour costs during regular production operations $ 21,000

It is expected that the machine could be used for 10 years, after which the residual value would be $0. However, Skye intends to use the machine for only eight (8) years and expects to be able to sell it for $3,000. The invoice for Machine no. 200 was paid on July 5, 2020. Skye has a December 31 year-end. As Machine no. 200 was purchased at the mid-point (July 1) of the fiscal year, depreciation expense for 2020 is for six (6) months. Phoenix follows IFRS for financial statement purposes.

.Required:

Calculate the depreciation expense for the years indicated using the following methods (round to the nearest dollar);

Straight-line method for the fiscal years ended December 31, 2020 and 2021.

Double-declining-balance method for the fiscal years ended December 31, 2020 and 2021.

The President of Skye tells you that, because the company is new, she expects it will be several years before production and sales reach optimum level. She asks you, an accounting policy advisor, to recommend a depreciation method that will allocated less of the companys depreciation expense to the early years and more to later years of the assets lives. Which method would you recommend? Explain?

In your answer to requirement (b) above, how would cash flows to the new company be affected by the choice of depreciation method? How would current and potential creditors interpret the choice of depreciation method?

Assume that Skye selects the double-declining-balance method of depreciation. In 2022, demand for the product produced by machine no. 200decreases sharply, due to the launch of a new and better competing product on the market. On August 1, 2022, management of Skye meets and decides to discontinue manufacturing the product. On September 1, 2022, a formal plan to sell the machine is authorized. On this date, the machine meets all criteria for classification as held for sale, and the machines fair value less costs to sell is $131,000.

Calculate the depreciation expense for 2022.

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