Equipment acquired at a cost of $75,000 has an estimated residual value of $5,000 and an estimated useful life of 10 years. It was placed in service on October 1 of the current fiscal year, which ends on December 31.
a. Determine the depreciation for the current fiscal year and for the following fiscal year by the straight-line method.
b. Determine the depreciation for the current fiscal year and the following fiscal year by the double-declining-balance method.
Answer a.
Depreciation under straight line method | |
1st year | $ 1,750 |
2nd year | $ 7,000 |
Answer b. | |
Depreciation under double declining method | |
1st year | $ 3,750 |
2nd year | $ 14,250 |
working for the above answer
Straight line method | |
Capitalized Cost | $ 75,000 |
Life of Assets | 10 Years |
Residual value | $ 5,000 |
Depreciation = (Cost-Residual Value)/Life years | =(75000-5000)/10 |
=70000/10= | $ 7,000 |
Depreciation for 1st year from 1st Oct to 31st December | |
=7000*3/12 = | $ 1,750 |
Depreciation for 2nd year | $ 7,000 |
Double Declining Balance Method | |
Capitalized Cost | $ 75,000 |
Life of Truck | 10 Years |
Residual value | $ 5,000 |
Rate of Depreciation under DDB = 2*100/10 | 20% |
First yea Depreciation = 20% of $75000 for 3 months = | |
=75000 x 20% x 3/12 | $ 3,750 |
Book value in the beginning of 2nd year | $ 71,250 |
Depreciation for 2nd year | $ 14,250 |
=20% of ($75000-$3750) = |
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