Question

HP purchased a new laser printer at the start of 2018. The equipment cost $368,460 and has an estimated life of five years. At the end of this time, the estimated salvage value is $41,400.

(a) You have been asked to help prepare the financial information regarding this purchase to be included in the annual financial report to shareholders. Use a straight-line depreciation method and calculate the following values at the end of each year of the equipment’s useful life: annual depreciation amount, accumulated depreciation, and book value of the equipment.

(b) Repeat part (a) using a double declining balance method making sure to make all necessary adjustments to the depreciation schedule.

(c) You’ve also been asked to help with financial reporting for tax purposes. Find the annual depreciation amount, accumulated depreciation, and book value of the purchase. The equipment falls into a seven-year MACRS property class.

Answer 1

(a) Straight Line Depreciation = (original Cost - Salvage Value) / Useful Life
= ($368460 - $41400) / 5 = $65412

Year	Beginning Book Value	Depreciation	Accumulated Depreciation	Ending Book Value
2018	$   368,460.00	$   65,412.00	$     65,412.00	$    303,048.00
2019	$   303,048.00	$   65,412.00	$   130,824.00	$    237,636.00
2020	$   237,636.00	$   65,412.00	$   196,236.00	$    172,224.00
2021	$   172,224.00	$   65,412.00	$   261,648.00	$    106,812.00
2022	$   106,812.00	$   65,412.00	$   327,060.00	$      41,400.00

(b) Double Declining Balance Depreciation = Beginning Book Value x 2 times straight line depreciation rate
Straight line Depreciation rate = 1/5 x 100 = 20%

Year	Beginning Book Value	Depreciation	Accumulated Depreciation	Ending Book Value
2018	$         368,460	$       147,384	$         147,384	$          221,076
2019	$         221,076	$         88,430	$         235,814	$          132,646
2020	$         132,646	$         53,058	$         288,873	$            79,587
2021	$           79,587	$         31,835	$         320,708	$            47,752
2022	$           47,752	$            6,352	$         327,060	$            41,400

Depreciation for 2022 = 40% of $47752 = $19101, but maximum to ($47752-41400) i.e. $6352 so that end value is $41400

(c)

Year	Beginning Book Value	Rate	Depreciation	Accumulated Depreciation	Ending Book Value
2018	$         368,460	14.29%	$           52,653	$            52,653	$           315,807
2019	$         315,807	24.49%	$           77,341	$          129,994	$           238,466
2020	$         238,466	17.49%	$           41,708	$          171,702	$           196,758
2021	$         196,758	12.49%	$           24,575	$          196,277	$           172,183
2022	$         172,183	8.93%	$           15,376	$          211,653	$           156,807
2023	$         156,807	8.92%	$           13,987	$          225,640	$           142,820
2024	$         142,820	8.93%	$           12,754	$          238,394	$           130,066
2025	$         130,066	4.46%	$             5,801	$          244,195	$           124,265

Rates is prescribed using half year convention