Question

CP 8‐2 Ekman Corporation purchased a new laser printer to be used in its business. The printer had a list price of $4,000, but Ekman was able to purchase it for $3,250. The company expects it to have a useful life of five years, with an estimated salvage value of $250. Ekman is paying the delivery costs of $100, set‐up and debugging costs of $300, and the costs of purchasing an appropriate table for $50. There was sales tax of 10 per cent on the purchase price of the printer but not on the other costs. Required: 1. Calculate the total cost of the laser printer. 2. Ekman management asks you whether the straight‐line or double‐ declining balance method of depreciation would be most appropriate for the printer. Provide calculations to support your answer. Assume the company uses the ½ year rule to calculate depreciation expense in the year of acquisition and disposal.

Answer 1

1
Calculate cost of laser printer
Purchase price	$3,250
Delivery costs	$100
Set-up and debugging costs	$300
Sales tax	$325	3250*10%
Total costs of laser printer	$3,975
Table costs is not related to laser printer purchase and thus not included
Thus, total costs of later printer is $3,975
2
Laser printer are technology related to product which comes obsolete faster with changes in technology
Thus, for laser printer double declining depreciation method that is accelerated method is recommended as most of asset value would be depreciated at early stage.
With straight-line depreciation method depreciation for each year would be equal
Straight line depreciation	(3975-250)/5
Straight line depreciation	$745
Depreciation in double declining method
Double declining depreciation rate	2*(1/5)
Double declining depreciation rate	40.00%
Depreciation
1	$1,590.00	3975*40%
2	$954.00	(3975-1590)*40%
3	$572.40	(3975-1590-954)*40%
4	$343.44	(3975-1590-954-572)*40%
5	$93.44	343.44-250
Thus, with double declining depreciation method most of the asset would be depreciated earlier as compared to straight line method