Question

Exercise 9.4 Depreciation Methods (LO9-3)

On January 2, 2018, Jatson Corporation acquired a new machine with an estimated useful life of five years. The cost of the equipment was $50,000 with an estimated residual value of $4,000.

a-1. Prepare a complete depreciation table under the straight-line method. Assume that a full year of depreciation was taken in 2018.

a-2. Prepare a complete depreciation table under the 200 percent declining-balance method. Assume that a full year of depreciation was taken in 2018.

a-3. Prepare a complete depreciation table under the 150 percent declining-balance with a switch to straight-line when it will maximize depreciation expense. Assume that a full year of depreciation was taken in 2018.

Answer 1

A-1) Straight line method of depreciation :-

Depreciation per year = (50,000 - 4,000)/5 = $9,200

Year	Opening balance	Depreciation	Closing balance
2018	50,000	9,200	40,800
2019	40,800	9,200	31,600
2020	31,600	9,200	22,400
2021	22,400	9,200	13,200
2022	13,200	9,200	4,000

A-2) 200 percent declining balance method :-

Depreciation rate = (1/5) x 200% = 40%

Year	Opening balance	Depreciation rate	Depreciation expense	Closing balance
2018	50,000	40%	20,000	30,000
2019	30,000	40%	12,000	18,000
2020	18,000	40%	7,200	10,800
2021	10,800	40%	4,320	6,480
2022	6,480	38.27	2,480	4,000

2022 year depreciation lower of (6,480 x 40%) or (6,480 - 4,000)

= 2,592 or 2,480

Therefore, 2,480 is Depreciation expense, rate = 2,480/6,480 = 38.27%

A-3) 150 percent declining balance method :-

Depreciation rate = (1/5) x 150% = 30%

Year	Opening balance	Depreciation expense	Closing balance
2018	50,000	15,000	35,000
2019	35,000	10,500	24,500
2020	24,500	7,350	17,150
2021	17,150	6,575	10,575
2022	10,575	6,575	4,000

Depreciation expense from year 2021 can be maximised with straight line method.

Opening Balance in 2021 = 17,150

Straight line depreciation = (17,150 - 4,000)/2 = 6,575

150% depreciation = 17,150 x 30% = 5,145

Therefore straight line method gives higher depreciation.