Question

Jaxon Company purchased quipment on July 1, 2016, for $270,000. It is estimated that the equipment will have a $20,00o salvage value at the end of its 10-year useful life. It is also estimated that the equipment will be used 125,000 hours over its 10-year life. 250,000 -depreciable cost 1 Straight-line method formula 2016 expense formula 2017 expense (270,000-2900) ()=7500 (270,000-20,00) 15000 7500 depreciation expense ఒవృరగు( *25,000/yr. 25,000lyr. *270 000-20000. 2 Double-declining-balance method 2016 expense formula formula 2017 expense (270,000-27,00)(20r.)= 18600 L18,600 depreciation 270p00(207)()= 27,000 27,000 expense 100% *270,000 -54,000=216,0 10 * 10%0 x2= 20% ta70,00Ox.2=54,00o 3 Units-of-activity method Compute the amount of denreciation oxponce

Please explain 1 and 2. I don't understand where the (1/2) is coming from. When I enter the formula in the green box I'm not getting 7500 on my calculator. I'm very confused as to why my answers with the * are wrong.

Answer 1

Answer

• First of all, the (1/2) is coming in 2016 expense because the Equipment was used for 6 months (half year) in year 2016, from 1 Jul 2016 to 31 Dec 2016 = 6 months. Hence, ½ = 50% Depreciation.
• Follow this working for clearance

A	Cost	$          270,000.00
B	Residual Value	$            20,000.00
C=A - B	Depreciable base	$          250,000.00
D	Life [in years]	10
E=C/D	Annual SLM depreciation	$            25,000.00
F=E/C	SLM Rate	10.00%
G=F x 2	DDB Rate	20.00%

• Requirement 1: Straight Line Method

	Formula	2016 Expense	Formula	2017 Expense
Depreciation expense	[(270000-20000)/10] x 1/2	$12,500	[(270000-20000)/10]	$25,000

• Requirement 2: Double declining balance method

	Formula	2016 Expense	Formula	2017 Expense
Depreciation expense	[(270000 x 20%)] x 1/2	$27,000	[(270000-27000) x 20%]	$48,600