Question

Grouper Corporation purchased machinery on January 1, 2022, at a cost of $264,000. The estimated useful life of the machinery is 4 years, with an estimated salvage value at the end of that period of $31,400. The company is considering different depreciation methods that could be used for financial reporting purposes.

Answer 1

a)Depreciable cost= cost -salvage value

               = 264000-31400

               = 232600

Depreciation rate= 1/useful life

            = 1/4

             = .25 or 25%

STRAIGHT LINE DEPRECIATION
	COMPUTATION					END OF YEAR
	Depreciable cost	*	Depreciation rate	=	Depreciation expense	Accumulated depreciation	Book value at end
2022	232600		25%		58150	58150	264000-58150= 205850
2023	232600		25%		58150	58150+58150= 116300	264000-116300= 147700
2024	232600		25%		58150	116300+58150= 174450	264000-174450= 89550
2025	232600		25%		58150	174450+58150= 232600	264000-232600= 31400
					232600

b)

Depreciation rate= 2/useful life

            = 2/4

             = .50 or 50%

DOUBLE DECLINING DEPRECIATION
	COMPUTATION					END OF YEAR
	Book value beginning of year	*	Depreciation rate	=	Depreciation expense	Accumulated depreciation	Book value at end
2022	264000		50%		132000	132000	264000-132000=132000
2023	132000		50%		66000	132000+66000=198000	264000-198000= 66000
2024	66000		50%		33000	198000+33000= 231000	264000-231000=33000
2025	33000		1600/33000=4.85%		33000-31400=1600	231000+1600=232600	31400
					232600

In year 2025,Charging of actual depreciation of 33000*50% = 16500 will make book value at end equals to 16500 which is below minimum salvage value required .Thus depreciation for the year will be restricted such that book value at end is equals to salvage value of 31400