Question

III. DEPRECIATION RECORDS L.M. Farmer lost all depreciation records from past years and needs help reconstructing a depreciation schedule. From the following information, calculate the depreciation for each item for each appropriate year. For items purchased during the year, only a prorated part of the first year's depreciation can be taken. Use the attached form and complete all columns including the totals. Watch the purchase dates and begin depreciation in the year of the purchase, not before. For convenience, round everything to the nearest whole dollar. Method SL DDB 150% DB DDB & SL' Life Cost Salvage Value 10 $45,480 $12,200 5 $165,000 $38,000 8 $82,800 $15,000 8 $32,400 $5,200 Item Purchase Date 1) Jan 1, 2017 2) July 1, 2017 3)Sept 1,2018 4) Jan 1, 2018 Truck Combine Tractor Pickup *USE DDB for 2016 and 2017, then switch to SL in 2018 HINT: Watch the combine. There is a high salvage value and you cannot depreciate below the salvage value.

Answer 1

DEPRECIATION SCHEDULE – I.M FARMER

Date Acquired	Item	Cost	Salvage value	Methods	Life	2017		2018
						Depre. This year	Book Value	Depre. This year	Book Value
Jan 01,2017	Truck	$45480	$12200	SL	10	$3328	$42152	$3328	$38824
July 01,2017	Combine	$165000	$38000	DDB	5	$33000	$132000	$52800	$79200
Sept 01,2018	Tractor	$82800	$15000	150% DB	8	-	-	$5175	$77625
Jan 01,2018	Pickup	$32400	$5200	DDB & SL	8	-	-	$3400	$29000
Total						$36328	$174152	$64703	$224649

Workings:

Calculation of Depreciation of Truck:

Straight line Depreciation expense = (Cost of truck – Salvage value)/Life

= (45480 – 12200)/10 = $3328

Calculation of Depreciation of Combine:

Double declining balance methods = Cost of Combine* Double declining rate

Double declining rate = (100/life)*2 = (100/5)*2 = 40%

Depreciation expense in 2017 = (165000*40%)*6/12 = 66000*6/12 = $33000

Depreciation expense in 2018 = (165000 – 33000)*40% = 52800

Calculation of Depreciation of Tractor:

150% Declining balance methods = Cost of Tractor* 150% Declining balance rate

150% Declining balance rate = (100/life)*1.5 = (100/8)*1.5 = 18.75%

Depreciation expense in 2018 = (82800*18.75%)*4/12 = 15525*4/12 = $5175

Calculation of Depreciation of Pickup:

Straight line Depreciation expense = (Cost of Pickup – Salvage value)/Life

= (32400 -5200)/8 = $3400