Mouskori Limited purchased a machine on September 3, 2012, at a cash price of $187,800. On September 4, it paid $1,200 for delivery of the machine. A one-year, $1,950 insurance policy on the machine was purchased on September 6. On September 20, Mouskori paid $7,000 for installation and testing of the machine. The machine was ready for use on September 30.

Mouskori estimates the machine's useful life will be four years, or 40,000 units, with no residual value. Assume the equipment produces the following number of units each year: 2,500 units in 2012; 10,300 units in 2013; 9,900 units in 2014; 8,800 units in 2015; and 8,500 units in 2016. Mouskori has a December 31 year end.

Instructions

(a) Determine the cost of the machine.

(b) Calculate the annual depreciation and the total depreciation over the asset's life using

(1) Straight-line depreciation,

(2) Double diminishing-balance depreciation,

(3) Units-of-production depreciation. Which method causes profit to be lower in the early years of the asset's life?

(c) Assume instead that, when Mouskori Corporation purchased the machine, the company had a legal obligation to ensure that the machine would be recycled at the end of its useful life and that the cost of this recycling would be significant. Would this have an impact on the answers to (a) and (b) above? Explain.