Homework Answers
Acquisition cost = $1000000
Salvage value = 50000
Half year convention, under this the first year, half year depreciation is recordamount are allocated.
Useful life = 8 years
A. Straight line Depreciation
Each year depreciation is same
Depreciation amount = Depreciable value / useful life
Depreciable value = cost - salvage value
Depreciable value = 1000000 - 50000 = 950000
Depreciation amount = 950000 / 8 = 118750
Schedule
|
Year |
Computation |
Depreciation expenses |
Accumulated depreciation |
Book Value |
|
2020 |
(950000 / 8)/2 |
59375 |
59375 |
940625 |
|
2021 |
950000/8 |
118750 |
178125 |
821875 |
|
2022 |
950000/8 |
118750 |
296875 |
703125 |
|
2023 |
950000/8 |
118750 |
415625 |
584375 |
|
2024 |
950000/8 |
118750 |
534375 |
465625 |
|
2025 |
950000/8 |
118750 |
653125 |
346875 |
|
2026 |
950000/8 |
118750 |
771875 |
228125 |
|
2027 |
950000/8 |
118750 |
890625 |
109375 |
|
2028 |
(950000 / 8)/2 |
59375 |
950000 |
50000 |
B. Double Decline Balance method ( switch over to straight line in year 2026)
.
Double Decline rate (%) = straight line rate * 2
straight line rate = 100 / 8 = 12.5%
Double Decline rate (%) = 12.5 * 2 = 25%
Schedule
|
Year |
Computation |
Depreciation expenses |
Accumulated depreciation |
Book Value |
|
2020 |
(1000000*25%)/2 |
125000 |
125000 |
875000 |
|
2021 |
875000* 25% |
218750 |
343750 |
656250 |
|
2022 |
656250*25% |
164063 |
507813 |
492188 |
|
2023 |
492188 *25% |
123047 |
630859 |
369141 |
|
2024 |
369141*25% |
92285 |
723145 |
276855 |
|
2025 |
276855 * 25% |
69214 |
792358 |
207642 |
|
2026 |
( 207642 - 50000 ) / 2 |
78821 |
871179 |
128821 |
|
2027 |
( 207642 - 50000 ) / 2 |
78821 |
950000 |
50000 |
* In 2026, switch to straight line.
Book value at end of 2025 = $207642
Salvage value
Remaining useful life = 2
Depreciation amount in both year =( 207642 - 50000 ) / 2= 78821
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