Question

Welcome to Tower and Mindak CPAs! We are glad to have you on our accounting team. We are a consulting firm that works with clients to solve their accounting issues. Crowe Inc., a start-up manufacturing client, has recently purchased machinery for their plant and has asked for our advice on the asset’s depreciation. In particular, they are trying to understand the differences in their depreciation expense as a result of choosing the various options in depreciation methods. You have been asked to compute the depreciation for the asset’s useful life using straight line, sum of the years and double declining balance. Please complete the following steps:

1. Crowe Inc. purchased and put into use the machine on January 1^st, 2019 for $600,000. The machine has a salvage value of 50,000 and a useful life of 10 years.

Instructions:   Use Excel to prepare the client’s depreciation schedules. See the text in chapter 11 for suggested formats of the Sum-of-the-years’-digits (Illustration 11-6) and double-declining balance (Illustration 11-7) methods. For straight-line depreciation, use the following columns: Year, Depreciation Expense, Accumulated Depreciation Balance, and Book value. For the double declining balance method adjust depreciation as necessary in the final year.

1. Compute the amount of depreciation for years 1 through 10 for the machine using the straight-line depreciation method.
2. Compute the amount of depreciation for years 1 through 10 for the machine using the sum-of-years-digits depreciation method.
3. Compute the amount of depreciation for years 1 through 10 for the machine using the double-declining balance method. (Round your answers to the nearest dollar.)

Requirement: (12 points) Provide Crowe Inc. with a printed copy of the depreciation schedules as calculated above. In addition, print out a copy of the formulas to earn full credit.

Note: You need to start with the following facts in the excel spreadsheet. Then, derive all of the depreciation calculations from these facts to create formulas in the spreadsheet:

Problem Facts:
Date Purchased	1/1/2019
Year in use	2019
Purchase Price	600,000
Useful Life (in years)	10
Salvage Value	50,000

Answer 1

a. Staright line Depreciation = (Original Value - Salvage Value) / Useful Life

Year	Opening balance	Depreciation	Accumulated Depreciation	Ending Balance
2019	$     6,00,000.00	$ 55,000.00	$       55,000.00	$ 5,45,000.00
2020	$     5,45,000.00	$ 55,000.00	$    1,10,000.00	$ 4,90,000.00
2021	$     4,90,000.00	$ 55,000.00	$    1,65,000.00	$ 4,35,000.00
2022	$     4,35,000.00	$ 55,000.00	$    2,20,000.00	$ 3,80,000.00
2023	$     3,80,000.00	$ 55,000.00	$    2,75,000.00	$ 3,25,000.00
2024	$     3,25,000.00	$ 55,000.00	$    3,30,000.00	$ 2,70,000.00
2025	$     2,70,000.00	$ 55,000.00	$    3,85,000.00	$ 2,15,000.00
2026	$     2,15,000.00	$ 55,000.00	$    4,40,000.00	$ 1,60,000.00
2027	$     1,60,000.00	$ 55,000.00	$    4,95,000.00	$ 1,05,000.00
2028	$     1,05,000.00	$ 55,000.00	$    5,50,000.00	$      50,000.00

b. Sum of year Digits Method = (Original Value - Salvage Value) x No. of years life remaining / Sum of years

Year	Opening balance	Digits	Depreciation	Accumulated Depreciation	Ending Balance
2019	$     6,00,000.00	10	$    1,00,000.00	$ 1,00,000.00	$ 5,00,000.00
2020	$     5,00,000.00	9	$       90,000.00	$ 1,90,000.00	$ 4,10,000.00
2021	$     4,10,000.00	8	$       80,000.00	$ 2,70,000.00	$ 3,30,000.00
2022	$     3,30,000.00	7	$       70,000.00	$ 3,40,000.00	$ 2,60,000.00
2023	$     2,60,000.00	6	$       60,000.00	$ 4,00,000.00	$ 2,00,000.00
2024	$     2,00,000.00	5	$       50,000.00	$ 4,50,000.00	$ 1,50,000.00
2025	$     1,50,000.00	4	$       40,000.00	$ 4,90,000.00	$ 1,10,000.00
2026	$     1,10,000.00	3	$       30,000.00	$ 5,20,000.00	$      80,000.00
2027	$        80,000.00	2	$       20,000.00	$ 5,40,000.00	$      60,000.00
2028	$        60,000.00	1	$       10,000.00	$ 5,50,000.00	$      50,000.00
		55

c. Double Declining Depreciation = Book Value at beginning x 2 Straight line depreciation rate
Straight line Depreciation rate = 1/10 x 100 = 10%

Year	Opening balance	Depreciation	Accumulated Depreciation	Ending Balance
2019	$     6,00,000.00	$        1,20,000.00	$    1,20,000.00	$ 4,80,000.00
2020	$     4,80,000.00	$           96,000.00	$    2,16,000.00	$ 3,84,000.00
2021	$     3,84,000.00	$           76,800.00	$    2,92,800.00	$ 3,07,200.00
2022	$     3,07,200.00	$           61,440.00	$    3,54,240.00	$ 2,45,760.00
2023	$     2,45,760.00	$           49,152.00	$    4,03,392.00	$ 1,96,608.00
2024	$     1,96,608.00	$           39,321.60	$    4,42,713.60	$ 1,57,286.40
2025	$     1,57,286.40	$           31,457.28	$    4,74,170.88	$ 1,25,829.12
2026	$     1,25,829.12	$           25,165.82	$    4,99,336.70	$ 1,00,663.30
2027	$     1,00,663.30	$           20,132.66	$    5,19,469.36	$      80,530.64
2028	$        80,530.64	$           16,106.13	$    5,35,575.49	$      64,424.51