Question

Question 2.17. Using the information provided in the problem on page 83, calculate/answer the following questions: a. Calculate the depreciation expense using the straight-line method for the equipment. b. Calculate the depreciation expense using the double-declining balance method for the first year the equipment was owned c. Calculate the depreciation expense using the double-declining balance method for the second year the equipment was owned.

Answer 1

Answer to question 2.17

The information given are:

Equipment cost = $ 60,000

Salvage Value = $ 0

Useful Life =5 years

a) Depreciation expense = $12,000 per year. it can be calculated as below

Under straight line method,

                Depreciation expense = (Cost of the asset- salvage value) / Depreciation Period

                                            = ($ 60,000 - $ 0) / 5 Years

                                            = $ 60,000/ 5

                                            = $ 12,000 per year

                Depreciation for first 2 years = $ 12,000*2

                                                              = $ 24,000

b) Under double declining balance method, depreciation expense for the first year is $12,000

the calculation is given below,

Depreciation expense percentage =1/5*100)= 20%

So the depreciation expense for first year = $ 60,000*20% = $12,000

Balance - asset value = $60,000- $ 12,000 =$48,000

c) Depreciation Expense for year two =$ 9,600

Depreciation for the second year, is calculated on the reduced balance of asset.

Depreciation Expense for year 2 = $ 48,000*20% = $ 9,600