Question

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WindPower Inc designs and commissions the manufacture of a wind powered inverter-based constant voltage generator for research and experimentation with low-rated, highly variable, wind fields as a form of alternative energy. The unit cost $35,000 plus $3,000 for shipping and installation. After 3 years, WindPower had no further use for the experimental unit and was able t sell it for $2,000, less $500 for removal. WindPower had depreciated the generator cost over the 3 years with an estimated life of 5 years and a terminal book value of $1,000. All of the following parts relate to financial reporting, not computing income taxes. a. What is the total investment cost (basis) for this generator? ANSWER $38,000.00 b. What is the net market value actually received after three years? ANSWER $1,500.00 C. By what amount did the book value differ from the net market value at the end of 3 years if the following depreciation method was used? i. Straight-line depreciation. ü. Declining balance depreciation using a rate that ensures the book value equals the salvage value. iii. Double declining balance depreciation. iv. Double declining balance switching to straight line depreciation. ANSWER i= $ 14,300.00 ii= $ 2,781.79 iii = $6,708.00 iv = $ 6,708.00

Answer 1

Answert page or Given details. and installation unit cost = 35,000 plus $ 3000 Selling cost = $ 2000 " less = $500 for removal estimated life = 5 years. terminal book value = $ 1000. Required. (a) Total investment cost (basis) for the generator unit cost Total investment = unit cost + shipping and insta tation " 35000+$3,000 =$ 38,000. Total investment = $ 38,000 (b) net market value actually received after three years net market value = sale price - semoval . . $ 2000 - $500 . ¢ 1500. . net market value = $ 1500 l

page:02 (c) amount did the bose value net market value at the differ end of 3 from the years. (i) straight line depreciation. SLD. (cosé - calvage value) number 4 years ve -> formula to year. Depredation I Book value. $ 38,000 138000 - 1000)) = 7400 $ 38,000- 7400 - $ 30,600. $ 7400 $ 23,200 $ 7400 $ 15,800 $ 7400 $ 84 00 $ 7400 $ 1000 3 years according to SLN difference at the end method -$15,800-1500 = $14300

page :03 lü) Declining balance depreciation (DB) 06 - p*pxemple.cpe un permula. where pa siate of depreciation percentage.. BE → book value & asset .P initial price. t> year in which depredation is to be calculated. The depreciation Schedule and difference are shown below. year depreciation Book value. 38000 ·$ 19,646 $ 18,354 $ 9,489 a su le- $8,865 $4,282 $ 0,068 $999 $ 4,583 8,214 $ 1,069 difference at the end of $ 4282 - $1500 >>$ 2,782 | 3 year according to os metfood

page:04 (ii) Double declining balance CODB) The depredation schedule and difference are shown below - ODB ( cost; salvage, life, period, factor) year 1 Depreciation T book value.fi $ 38,000 $ 15, 200 $82,800 $ 9,120 $ 13,680 $ 5,472 $ 3,283 $ 1,970 $ 8,008 $4,995 $29,955 • The difference at the end of 3 years according to DDB method is $8208 - 1500 desnes => $ 6708 (iv) Double declining Balance depreciation switching to straight line depreciation

= VDB (cost, salvage, life, stort period, end-period, page:05 facto, non switch) The deprecation schedule and difference are shown below. year. T d epreciation / Book value. $ 38,000 $. 15, 200 $ 22, 800 ¢ 9120 $ 13,680 $ 5,442 $8,208 $ 3,604 $4,604 $1000 3,604 Hence, the difference at the end of 3 years according to declining balance depreciation switching method is -) $82708 --$25.00 >># 6408