Question

A diffusion furnace is bought by a semiconductor manufacturer for a cost of $12,000,000 with an estimated life of 15 years and an estimated salvage value of $1,000,000. Prepare a table, that shows the annual costs of depreciation and book value of the furnace using (a) Straight line, (b) Declining Balance, (c) DDB, and (d) MACRS depreciation.

Answer 1

a)

Cost – Residual value $12,000,000 – S1,000,000 Straight line depreciation = Expected useful life 15

Straight line depreciation expense = $ 733,333.33 $\approx$ $ 733,333

Year	Book value ( Beginning of the year)	Depreciation expense ($)	Book value ( end of year)
1	12000000	733333	11266667
2	11266667	733333	10533334
3	10533334	733333	9800001
4	9800001	733333	9066668
5	9066668	733333	8333335
6	8333335	733333	7600002
7	7600002	733333	6866669
8	6866669	733333	6133336
9	6133336	733333	5400003
10	5400003	733333	4666670
11	4666670	733333	3933337
12	3933337	733333	3200004
13	3200004	733333	2466671
14	2466671	733333	1733338
15	1733338	733333	1000005

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b)

6.67% 15 Declining balance rate %3D %3D Useful life

Year	Book value ( Beginning of the year)	Depreciation rate	Depreciation expense ($)	Book value ( end of year)
1	12000000	6.67%	800400	11199600
2	11199600	6.67%	747013.3	10452586.7
3	10452586.7	6.67%	697187.5	9755399.2
4	9755399.2	6.67%	650685.1	9104714.1
5	9104714.1	6.67%	607284.4	8497429.7
6	8497429.7	6.67%	566778.6	7930651.1
7	7930651.1	6.67%	528974.4	7401676.7
8	7401676.7	6.67%	493691.8	6907984.9
9	6907984.9	6.67%	460762.6	6447222.3
10	6447222.3	6.67%	430029.7	6017192.6
11	6017192.6	6.67%	401346.7	5615845.9
12	5615845.9	6.67%	374576.9	5241269
13	5241269	6.67%	349592.6	4891676.4
14	4891676.4	6.67%	326274.8	4565401.6
15	4565401.6	6.67%	304512.3	4260889.3

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c)

Double declining balance -x 2 = - x 2 = 13.34 % 15 %3D Useful life

Year	Book value ( Beginning of the year)	Depreciation rate	Depreciation expense ($)	Book value ( end of year)
1	12000000	13.34%	1600800	10399200
2	10399200	13.34%	1387253.3	9011946.7
3	9011946.7	13.34%	1202193.7	7809753
4	7809753	13.34%	1041821.1	6767931.9
5	6767931.9	13.34%	902842.1	5865089.8
6	5865089.8	13.34%	782403	5082686.8
7	5082686.8	13.34%	678030.4	4404656.4
8	4404656.4	13.34%	587581.2	3817075.2
9	3817075.2	13.34%	509197.8	3307877.4
10	3307877.4	13.34%	441270.8	2866606.6
11	2866606.6	13.34%	382405.3	2484201.3
12	2484201.3	13.34%	331392.5	2152808.8
13	2152808.8	13.34%	287184.7	1865624.1
14	1865624.1	13.34%	248874.3	1616749.8
15	1616749.8	13.34%	215674.4	1401075.4

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d)  

MACRS depreciation

Year	Book value ( Beginning of the year)	Depreciation rate	Depreciation expense ($)	Book value ( end of year)
1	12000000	5.00%	600000	11400000
2	11400000	9.50%	1083000	10317000
3	10317000	8.55%	882103.5	9434896.5
4	9434896.5	7.70%	726487	8708409.5
5	8708409.5	6.93%	603492.8	8104916.7
6	8104916.7	6.23%	504936.3	7599980.4
7	7599980.4	5.90%	448398.8	7151581.6
8	7151581.6	5.90%	421943.3	6729638.3
9	6729638.3	5.91%	397721.6	6331916.7
10	6331916.7	5.90%	373583.1	5958333.6
11	5958333.6	5.91%	352137.5	5606196.1
12	5606196.1	5.90%	330765.6	5275430.5
13	5275430.5	5.91%	311777.9	4963652.6
14	4963652.6	5.90%	292855.5	4670797.1
15	4670797.1	5.91%	276044.1	4394753
16	4394753	2.95%	129645.2	4265107.8