Question

Question 2 The initial cost of a piece of construction equipment is $4000 000. It has useful life of 10 years. The estimated salvage value of the equipment at the end of useful life is $600 000. Calculate the depreciation charge and book value of the construction equipment using straight-line method and declining balance depreciation method in years 1, 4, 6, 9 and 10.

Answer 1

Answer 2

Straight-line method:

Year	Depreciation	Closing Book value
1	$     340,000	$            3,660,000
4	$     340,000	$            2,640,000
6	$     340,000	$            1,960,000
9	$     340,000	$                940,000
10	$     340,000	$                600,000

Calculations:

Depreciation = (4,000,000 - 600,000) / 10 = $ 340,000

Year	Opening Book value	Depreciation	Closing Book value
1	$               4,000,000	$     340,000	$            3,660,000
2	$               3,660,000	$     340,000	$             3,320,000
3	$               3,320,000	$     340,000	$             2,980,000
4	$               2,980,000	$     340,000	$            2,640,000
5	$               2,640,000	$     340,000	$             2,300,000
6	$               2,300,000	$     340,000	$            1,960,000
7	$               1,960,000	$     340,000	$             1,620,000
8	$               1,620,000	$     340,000	$             1,280,000
9	$               1,280,000	$     340,000	$                940,000
10	$                  940,000	$     340,000	$                600,000

Declining Balance method:

Year	Depreciation	Closing Book value
1	$     800,000	$            3,200,000
4	$     409,600	$            1,638,400
6	$     262,144	$            1,048,576
9	$     134,218	$                536,871
10	$     107,374	$                429,497

Calculations:

Depreciation rate = 100 / 10 * 2 = 20%

Year	Opening Book value	Depreciation (20%)	Closing Book value
1	$               4,000,000	$     800,000	$            3,200,000
2	$               3,200,000	$     640,000	$             2,560,000
3	$               2,560,000	$     512,000	$             2,048,000
4	$               2,048,000	$     409,600	$            1,638,400
5	$               1,638,400	$     327,680	$             1,310,720
6	$               1,310,720	$     262,144	$            1,048,576
7	$               1,048,576	$     209,715	$                838,861
8	$                  838,861	$     167,772	$                671,089
9	$                  671,089	$     134,218	$                536,871
10	$                  536,871	$     107,374	$                429,497

In case of any doubt, please comment.