Homework Answers
Solution
| Depreciation expense | |||
| Year | Straight line | Sum of year digit | Double declining balance |
| Year 1 | $ 1,500,000.00 | $ 3,333,333.33 | $ 4,800,000.00 |
| Year 2 | $ 2,000,000.00 | $ 2,666,666.67 | $ 2,880,000.00 |
| Year 3 | $ 2,000,000.00 | $ 2,000,000.00 | $ 1,728,000.00 |
| Year 4 | $ 2,000,000.00 | $ 1,333,333.33 | $ 592,000.00 |
| Year 5 | $ 2,000,000.00 | $ 666,666.67 | $ - |
Working
| Straight line Method | ||
| A | Cost | $ 12,000,000 |
| B | Residual Value | $ 2,000,000 |
| C=A - B | Depreciable base | $ 10,000,000 |
| D | Life [in years left ] | 5 |
| E=C/D | Annual SLM depreciation | $ 2,000,000.00 |
.
| Double declining Method | ||
| A | Cost | $ 12,000,000 |
| B | Residual Value | $ 2,000,000 |
| C=A - B | Depreciable base | $ 10,000,000 |
| D | Life [in years] | 5 |
| E=C/D | Annual SLM depreciation | $ 2,000,000 |
| F=E/C | SLM Rate | 20.00% |
| G=F x 2 | DDB Rate | 40.00% |
.
| Depreciation schedule-Double declining | |||||
| Year | Beginning Book Value | Depreciation rate | Depreciation expense | Accumulated Depreciation | Ending Book Value |
| 1 | $ 12,000,000 | 40.00% | $ 4,800,000 | $ 4,800,000 | $ 7,200,000 |
| 2 | $ 7,200,000 | 40.00% | $ 2,880,000 | $ 7,680,000 | $ 4,320,000 |
| 3 | $ 4,320,000 | 40.00% | $ 1,728,000 | $ 9,408,000 | $ 2,592,000 |
| 4 | $ 2,592,000 | 40.00% | $ 592,000 | $ 10,000,000 | $ 2,000,000 |
| 5 | $ 2,000,000 | 40.00% | $ 0 | $ 10,000,000 | $ 2,000,000 |
.
| Sum-of-the-Years'-Digits Method | ||
| A | Cost | $ 12,000,000 |
| B | Residual Value | $ 2,000,000 |
| C=A - B | Depreciable base | $ 10,000,000 |
| Sum of digits with 5 years (5+4+3+2+1) | 15 | |
.
| Year | Depreciable base | Formula | Depreciation expense | Accumulated Depreciation | Ending Book Value |
| 1 | $ 10,000,000 | (10000000/15x 5) | $ 3,333,333 | $ 3,333,333 | $ 8,666,667 |
| 2 | $ 10,000,000 | (10000000/15x 4) | $ 2,666,667 | $ 6,000,000 | $ 6,000,000 |
| 3 | $ 10,000,000 | (10000000/15x 3) | $ 2,000,000 | $ 8,000,000 | $ 4,000,000 |
| 4 | $ 10,000,000 | (10000000/15x 2) | $ 1,333,333 | $ 9,333,333 | $ 2,666,667 |
| 5 | $ 10,000,000 | (10000000/15x 1) | $ 666,667 | $ 10,000,000 | $ 2,000,000 |
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