Question

Company A purchased equipment. The cost for the equipment is 500,000. Estimated salvage value after 5 years is 50,000.

1. Determine the depreciation for year 3 using DDB, 150% DB and SL methods.

2. For DDB and 150% DB methods, determine the implied salvage after 5 years.

3. Calculate the depreciation rate d for each year for the DDB method.

4. Plot the book value of DDB and SL depreciation.

Answer 1

Cost of Asset 500000 Residual Value 50000 Useful Life Depreciable Asset Cost - Residual value Depreciable Asset Depreciation p.a Depreciable asset / Useful Life Depreciation p.a 450000 90000 Straight line Method Accumulated Depreciaton 90,000 410,000 180,000 $320,000 270,000 $230,000 $ Depreciation Book value Year expenses $ 90,000 $ 1 2 90,000 90,000 360,000 $140,000 450,000 $ 450,000 $ 4 90,000 90,000 $ 5 50,000 Total 360,000 50,000

Depreciation rate 1*150 /useful life) 30% Double Decline Method Accumulate Book value at Beginning of the Depreciation Depreciation d Depreciaton Book value year 500,000 Year rate expenses $150,000$ 150,000$350,000 $105,000$ 255,000$ 245,000 $ 30% $ $ 2 350,000 30% 73,500 328,500 171,500 $ 245,000 30% 51,450 379,950$120,050 36,015 415,965 $ $415,965 $ 415,965 $ 4 171,500 30% 5 120,050 30% 84,035 Total 84,035