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Answer:
Straight line depreciation expense
Year 1 = $27,500
Year 2, 3 ,4 = $41,250
Double declining method
Year 1: $60,000
Year 2: $60,000
Year 3: $30,000
Year 4: $15,000
Explanation:
Straight line depreciation expense = (Cost of asset - Salvage value) / useful life
( $180,000 - $15,000) / 4 = $41,250
Depreciation expense every year would be 41250 expect in year 1 when the machine was used for only 8 months.
To determine the deprecation expense in the 1st year, determine the monthly deprecation expense.
41250 / 12 = 3,437.50
Depreciation for 1 st year = 3,437.50 x 8 = $27,500
Depreciation expense using the double declining method = Depreciation factor x cost of the asset
Depreciation factor = 2 x (1/useful life)
2 / 4 = 0.5
Depreciation expense in year one = 0.5 x $180,000 = $90,000
The same procedure for determining depreciation expense in year 1 under straight line depreciation would also be used here.
90,000 / 12 = $7,500
$7,500 x 8 = $60,000
Book value at the beginning of year 2 = $180,000 - $60,000 = $120,000
Depreciation expense in year 2 = 0.5 x $120,000 = $60,000
Book value at the beginning of year 3 = $120,000 - $60,000 = $60,000
Depreciation expense in year 3 = 0.5 x $60,000 = $30,000
Book value at the beginning of year 4 =$60,000 - $30,000 = $30,000
Depreciation expense in year 4 = 0.5 x $30,000 = $15,000
I hope my answer helps you
Answer:
In these calculations it is assumed that the accounting year is taken from May to May Next Year.
Depreciation Straight Line = $ 41250
Explanation:
Given
Cost $180,000
Life= 4 years
Salvage Value= $ 15000
Formula
Depreciation Straight Line Method= Cost - Salvage Value/ Useful Life
Straight Line Rate= 100%/ useful Life= 100%/4 = 25%
Double Declining Method = 2 * Straight Line Rate
Double Declining Method = 2 * Straight Line Rate= 2*25%= 50%
1. Depreciation Straight Line Method= Cost - Salvage Value/ Useful Life
Depreciation Straight Line Method= $ 180,000- $15,000/ 4= $ 41250
The depreciation expense using the straight line method does not change unless the salvage value is reached
Years Depreciation Accumulated Dep Book Value
(Cost - Accu. Dep)
a.Year 1 $ 41250 41250 $180,000 - 41250= 138,750
b.Year 2 $ 41250 82500 $180,000 -82500= 97,500
c. Year 3 $ 41250 123750 $180,000 - 123750= 56,250
d. Year 4 $ 41250 165000 $180,000 -165000 = 15000
e. Year 5 Nil
So at the end of the fourth year the salvage value is reached. From here the depreciation expense is not applied further. These calculations indicate that the accounting year is taken from 1st May of the current year to the1st May of the next year.
But if we take the accounting year from Jan to Dec the calculations would be the same but the table would be a bit different.
Years Depreciation Accumulated Dep Book Value
(Cost - Accu. Dep)
a.Year 1 $ 24062.5 24062.5 $180,000-24062.5= 155,937.5
b.Year 2 $ 41250 65 312.5 $180,000 - 65312.5= 114687.5
c. Year 3 $ 41250 106562.5 $180,000- 106562.5= 73,437.5
d. Year 4 $ 41250 148,687.5 $180,000- 148,687.5 = 31,312.5
e. Year 5 17817.5 165000 15000
Here in the first year depreciation is calculated for 7 months and in the last year depreciation is calculated for 5 months.
41250/12 * 7= 24062.5
41250/12 *5= 17817.5
2.Straight Line Rate= 100%/ useful Life= 100%/4 = 25%
Double Declining Method = 2 * Straight Line Rate
Double Declining Method = 2 * Straight Line Rate= 2*25%= 50%
In double declining method the rate is multiplied to the cost to get the depreciation expense. 50 % of $ 180000= $ 90,000
Each year the rate is multiplied with the remaining book value after deducting the depreciation expense from the cost as $ 180,000- $ 90,000= $ 90,000
Next years depreciation will be $ 90,000 * 50%= $ 45000
This will be added in the original depreciation expense $90,000 + $ 45000 = $ 135,000 and deducted from cost to get the book value. $ 180,000- $ 135,000 = $ 45,000.
Again rate will be multiplied and each years depreciation will be calculated similarly.
It has been summarized in the table below.
Years Dep Rate Dep Expense Accu. Dep. Book Value
a. Year 1 50% 90,000 90,000 90,000
b. Year 2 50% 45,000 135,000 45000
c. Year 3 50% 22,500 157,500 22,500
d. Year 4 50% 11250 168750 11250
e. Year 5 50% 5625 174375 Nil
