Homework Answers
a.Straight Line:
It is one of the common and easiest method of depreciation. The uniqueness of this method is that the amount of depreciation is same every year over the useful life of the asset.
Depreciation = (Original cost - Salvage Value)/ useful life of the asset.
In this case, the original cost of the assset is $ 70000 and salvage value is 10% of the original cost. That is $7000.
Hence, depreciation = ($70000-$7000)/8 = $7875 every year.
b. Double Declining Balance :
This method is also called as accelerated depreciation since the depreciation in the initial years is very high and low in the later years and is calculated by multiplying the book value of the asset by 2.
Original cost = $70000
Salvage Value =$7000
Useful life = 8 years.
Rate of depreciation = 1/8*100 = 12.5%
Depreciation in Year 1 = 2 x Rate of depreciation x Original cost
Depreciation = 2 x $70000 x 12.5% =$17500.
Book value at the end of year 1 = $70000-$17500 = $ 52500
Depreciation for year 2 =2 x $52500 x 12.5% = $13125
Book value at the end of year 2 = $ 52500 - $13125 = $39375
Depreciation for year 3 = 2 x $39375 *12.5% = $9843.75
C. Declining balance at 150 percent rate
Useful life = 8 years.
Rate of depreciation = 1/8*100 =12.5%
Declining balance =150%
Rate of depreciation to be charged = 12.5 x 1.5 =18.75%
Depreciation for Year 1 = $70000*18.75% = $13125.
Book value at the end of year 1 = $70000-$13125 =$56875
Depreciation for Year 2 = $56875*18.75% =$10664
Book value at the end of year 2 =$56875-$10664 = $46211
Depreciation for Year 3 = $46211*18.75% =$8665
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