Question

1. Straight-Line Depreciation Year Expense 2015 $ 2016 2017 2018 2019 2. Double-declining balance (Round answers to the nearest whole number, when appropriate.) Depreciation Year Expense 2015 $ 2016 2017 2018 2019

Answer 1

Answer:

(a) 1. Straight Line Method

Depreciation under straight line method = (Cost of the asset - Salvage value) / Useful life of the asset

Here, cost of asset = $125,000

         Salvage Value = $5,000

Useful life of asset is 4 years

Depreciation per year under straight line method = (Cost of the asset - Salvage value) / Useful life of the asset

                                                                      = ($125.000 - $5,000) / 4

                                                                      = $120,000 / 4

                                                                      = $30,000

Straight Line Method
Year	Depreciation Expense
2015	$30,000
2016	$30,000
2017	$30,000
2018	$30,000

        

2. Double-Declining Balance method

    Depreciation under Double-Declining Balance method = 2 * [Cost of the asset * Depreciation rate]

      Here, Cost of asset is $125,000

               Depreciation rate = 1/Useful life * 100 = 1/4*100 = 25%

Year 1 Depreciation under Double-Declining Balance method = 2 * [Cost of the asset * Depreciation rate]

      = 2 * $125,000 * 25%

      = $62,500                                   

Year 2 Depreciation under Double-Declining Balance method = 2 * [Balance value of asset * Depreciation rate]     

= 2 * $62,500^# * 25%

= $31,250     

# = $125,000 - $62,500

In this way we compute Depreciation under Double-Declining Balance method

In 2019 we considered the value after reducing Scrap value of the asset as Depreciation.

Double-Declining Balance method
Year	Depreciation Expense
2015	$62,500
2016	$31,250
2017	$15,625
2018	$7812.5
2019	$2812.5

3. Units of production method

Depreciation under Units of production method

          =   (Cost of asset - Residual Value) * [Annual Production / Total production capacity of asset]

Units of production method
Year	Depreciation Expense
2015	$31,000
2016	$46,000
2017	$30,000
2018	$13,000

(b) 1.

Straight Line Method

Depreciation under straight line method = (Cost of the asset - Salvage value) / Useful life of the asset

Here, cost of asset = $125,000

         Salvage Value = $5,000

Useful life of asset is 4 years

As the machine is used from 1 July 2015 (6 months), the depreciation expense for 1 year is proportionately calculated

Depreciation per year under straight line method = [(Cost of the asset - Salvage value) / Useful life of the asset ]* 6/12

                                                                      = [($125.000 - $5,000) / 4] * 1/2

                                                                      = $30,000 / 2

                                                                      = $15,000

In 2019, the machine is used for only 6 months.

Straight Line Method
Year	Depreciation Expense
2015	$15,000
2016	$30,000
2017	$30,000
2018	$30,000
2019	$15,000

2. Double-Declining Balance method

Depreciation under Double-Declining Balance method = 2 * [Cost of the asset * Depreciation rate]

      Here, Cost of asset is $125,000

               Depreciation rate = 1/Useful life * 100 = 1/4*100 = 25%

As the machine is used from 1 July 2015 (6 months), the depreciation expense for 1 year is proportionately calculated

Year 1 Depreciation under Double-Declining Balance method = 2 * [Cost of the asset * Depreciation rate] * 6/12

      = 2 * $125,000 * 25% * 1/2

      = $62,500/2

= $31,250

        

Year 2 Depreciation under Double-Declining Balance method = 2 * [Balance value of asset * Depreciation rate]     

= 2 * $93,750^# * 25%

= $46,875

# = $125,000 - $31,250

In 2019, we consider entire value of the asset excluding realizable value as Depreciation expense.Because it is end of useful life of that asset and it should be completely written off excluding realizable value

Double-Declining Balance method
Year	Depreciation Expense
2015	$31,250
2016	$46,875
2017	$23,437.5
2018	$11,719
2019	$6,719