Question

Dino's After School has an asset, a workstation where customers can find school homework assignments and hints for the correct answers. Its original cost was $12,700 and it has a salvage value of $1, 270 and 7 years of useful life.

1. Calculate the annual depreciation expense under the straight-line method.
2. Assume depreciation rate under the Double Declining Balance Method to be 30%, then calculate the annual depreciation for each year (using the Double Declining Balance Method), and find the book value of the asset at the end of the 7th year
3. Explain how the depreciation amount is included on the balance sheet, and why it is needed for the balance sheet. (50-100 words)

Answer 1

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Straight Line Method Depreciation:
Original Cost	$               12,700
Less: Salvage Value	$                 1,270
Depreciable Value	$               11,430
Life	7 Years
Annual Depreciation	$ 11,430/7 Years
	$            1,632.86
Double Declining Balance Method:
Rate of Depreciation	30%
(Its not clear if 30% is normal rate of DDB rate. Calculation done based on 30% as DDB Rate)
	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7
Initial Book Value/Original Cost=A	$               12,700	$    8,890	$    6,223	$    4,356	$    3,049	$    2,134	$    1,494
Annual Depreciation 30% of A=B	$                 3,810	$    2,667	$    1,867	$    1,307	$       915	$       640	$       448
Ending Book Value A-B	$                 8,890	$    6,223	$    4,356	$    3,049	$    2,134	$    1,494	$    1,046
Last Part:
Depreciation reported on Balance sheet is total accumulated amount of Depreciation expense appearing in income statement
since the day asset has been purchased or put to use.
In Balance sheet, accumulated depreciation is shown as a deduction from the particular asset.
Asset
Less: Accumulated Depreciation
Net Asset
Depreciation is required to be shown in balance sheet to ensure that asset appearing in balance sheet
is shown at correct book value.