Question

10. EX.09-10.ALGO (Algorithmic) Depreciation by Two Methods A storage tank acquired at the beginning of the fiscal year at a cost of $126,000 has an estimated residual value of $7,600 and an estimated useful life of four years. a. Determine the amount of annual depreciation by the straight-line method. b. Determine the amount of depreciation for the first and second years computed by the double-declining balance method. Do not round the double-declining balance rate. If required, round your answers to the nearest dollar. Depreciation Year 1 $ Year 2 $

Answer 1

Ans:

1. Calculation of amount of annual depreciation by the straight-line method:

Annual depreciation by the straight-line method = (Cost- salvage value ) / life in years

=(126,000-7600) / 4 Years

= 118,400 / 4

= $29,600 Per year

2. Calculation of amount of depreciation using double-declining-balance method:

For first year :

Amount of depreciation = Cost * (2/life in years )

= 126000* (2/4)

= $63,000

For second year:

Previous year ending Book value * (2/life In years)

= (126000-63000) * (2/4)

= 63,000*2/4

= $31,500