Question

You have a tax basis of $90,000 and a useful life of five years and no salvage value. Provide a depreciation schedule (d, for k=1-5) for 150% declining balance with switchover to straight line. Specify the year to switchover. Determine the depreciation amounts using the 150% declining balance and straight-line methods and BV amounts for each year. (Round to the nearest dollar.) Year 150% DB Method, $ SL Method, $ Depreciation Amount Selected, $ BV: $ 1 0 0 0 0

Answer 1

The depreciation expense using the straight line method is calculated as : -

Cost - salvage value Straight line depreciation expense = - Useful life $90000 - 0 5 years

Straight line depreciation expense = $ 18000

Double declicing balance deprecaition rate = Estimated life (years)

Double declicing balance deprecaition rate = ution rate = = x 2 = 40%

Depreciation schedule with double declining balance
Year	Annual depreciation expense	Accumulated depreciation	Book value
1	0.40 × 90000 = 36000	0	54000
2	0.40 × 54000 = 21600	57600	32400
3	0.40 × 32400 = 12960	70560	19440
4	0.40 × 19440 = 7776	78336	11664
5	0.40 × 11664 = 4665.6	83001.6	6998.4

Depreciation schedule with straight line method
Year	Annual depreciation expense	Accumulated depreciation	Book value
1	18000	0	72000
2	18000	18000	54000
3	18000	36000	36000
4	18000	54000	18000
5	18000	72000	0

In the year 3, the depreciation method switches over to straight line method.

Year	150% DB method, $	SL method, $	Depreciation amount selected, $	Book value, $
1	$36,000	$18,000	$36,000	$54,000
2	$21,600	$18,000	$21,600	$32,400
3	$12,960	$18,000	$18,000	$14,400
4	$7,776	$18,000	$18,000	$0
5	$4,666	$18,000	$18,000	$0