On January 2, 2020, Rachel, Inc. purchased a new machine for its factory. The new machine...
On January 2, 2020, Rachel, Inc. purchased a new machine for its factory. The new machine cost
$55,000, has an expected useful life of 7 years and an estimated residual value of $5,000.
Prepare a depreciation schedule for the new machine using the following depreciation methods:
1) Straight Line (SL)
2) Sum-of-the-Years-Digits (SYD)
3) Declining Balance using twice the straight line rate (DDB)
4) Modified Accelerated Cost Recovery System (MACRS) (5 year asset class)
Homework Answers
| Cost of Machine | 55000 | |||||
| Residual Value | 5000 | |||||
| Life | 7 Years | |||||
| 1 | Straight Line Method | |||||
| Year | Depreciation | |||||
| 2020 | 7143 | |||||
| 2021 | 7143 | |||||
| 2022 | 7143 | |||||
| 2023 | 7143 | |||||
| 2024 | 7143 | |||||
| 2025 | 7143 | |||||
| 2026 | 7142 | |||||
| 50000 | ||||||
| Depreciation | = (Value of Assets - Residual Value) / Life of Assets | |||||
| =(55000-5000)/7 | ||||||
| =7143 | ||||||
| 2 | Sum of the Year Digit Method | |||||
| Year | Depreciation Base | Remaining Life | Depreciation Fraction | Depreciation | Book Value | |
| =depreciation base x Depreciation Fraction | ||||||
| 1 | 55,000.00 | 7 | 7/28 | 13,750.00 | 41,250.00 | |
| 2 | 55,000.00 | 6 | 6/28 | 11,785.71 | 29,464.29 | |
| 3 | 55,000.00 | 5 | 5/28 | 9,821.43 | 19,642.86 | |
| 4 | 55,000.00 | 4 | 4/28 | 7,857.14 | 11,785.71 | |
| 5 | 55,000.00 | 3 | 3/28 | 5,892.86 | 5,892.86 | |
| 6 | 55,000.00 | 2 | 2/28 | 3,928.57 | 1,964.29 | |
| 7 | 55,000.00 | 1 | 1/28 | 1,964.29 | 0.00 | |
| 28 | ||||||
| 3 | Declining Balance using twice the straight line rate (DDB) | |||||
| Year | Book Value | Depreciation | Book Value (Year End) | |||
| 1 | 55,000.00 | 15,719.00 | 39,281.00 | |||
| 2 | 39,281.00 | 11,222.58 | 28,058.42 | |||
| 3 | 28,058.42 | 8,016.29 | 20,042.13 | |||
| 4 | 20,042.13 | 5,726.04 | 14,316.09 | |||
| 5 | 14,316.09 | 4,090.11 | 10,225.98 | |||
| 6 | 10,225.98 | 2,921.56 | 7,304.42 | |||
| 7 | 7,304.42 | 2,304.42 | 5,000.00 | |||
| Cost of the asset = $ 55,000 | ||||||
| Salvage Value = $ 5,000 | ||||||
| The useful life of the asset = 7 years | ||||||
| Depreciation rate = 1/useful life *100 = (1/7) * 100 = 14.29% | ||||||
| Double-declining balance formula = 2 X Cost of the asset X Depreciation rate | ||||||
| Here, it will be 2 x14.286 % = 28.58% | ||||||
| Year 1 Depreciation = $55000 X 28.58% = $15719 | ||||||
| Year 2 Depreciation = $39281 x 28.58% = $11,222.58 | ||||||
| The final double declining balance depreciation expense was $ 2304.42 which is more than the actual $2086.87 (28.58% of $7,304.42 ). It was done to change the salvage value as estimated | ||||||
| 4 | MACRS Depreciation Table for 5 years | |||||
| Depreciation Rates (%) | ||||||
| Year | Depreciation Rate | Value of Assets | Depreciation | |||
| 1 | 20 | 55000 | 11000 | |||
| 2 | 32 | 55000 | 17600 | |||
| 3 | 19.2 | 55000 | 10560 | |||
| 4 | 11.52 | 55000 | 6336 | |||
| 5 | 11.52 | 55000 | 6336 | |||
| 6 | 5.76 | 55000 | 3168 | |||
| total | 55000 | |||||
| MACRS Depreciation rate are given in table, you can google for it or it is mentioned in your text books | ||||||
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