Kent has $500,000 in equipment and machinery that was acquired on January 2, 2009. Kent has been using the double-declining balance method to depreciate the equipment over an estimated 10 year economic life with no salvage value. On January 1, 2011, Kent decides to change to the straight line method with no salvage value. Kent has a 40% tax rate. Calculate the following:
Indicate the amount of the accounting change shown net of tax if appropriate.
I have the answers, can you work them out so I know how to find them please
Answer
A |
Cost |
$ 500,000.00 |
B |
Residual Value |
$ - |
C=A - B |
Depreciable base |
$ 500,000.00 |
D |
Life [in years] |
10 |
E=C/D |
Annual SLM depreciation |
$ 50,000.00 |
F=E/C |
SLM Rate |
10.00% |
G=F x 2 |
DDB Rate |
20.00% = Step 1 complete |
Year |
Beginning Book Value |
Depreciation rate |
Depreciation expense |
Ending Book Value |
Accumulated Depreciation |
2009 |
$ 500,000.00 |
20.00% |
$ 100,000.00 |
$ 400,000.00 |
$ 100,000.00 |
2010 |
$ 400,000.00 |
20.00% |
$ 80,000.00 |
$ 320,000.00 |
$ 180,000.00 = Requirement ‘a’ Answer |
A |
Cost |
$500,000 |
B [calculated in Requirement 'a'] |
Accumulated depreciation till 12/31/10 |
$180,000 |
C = A - B |
Book Value |
$320,000 |
D = 10 years - 2 years already passed |
Remaining life [years] |
8 |
E = C/D |
New Straight Line depreciation from 2011 |
$40,000 = Answer for Requirement ‘b’ |
Accumulated Depreciation at 12/31/2011
= $ 180000 (Requirement ‘a’) + $40000 (Requirement ‘b’)
= $ 220,000 = Answer
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