Question

1. Maple Company's wood pressing machine was purchased for $18 million on January 1, 20X1. It needed to be tested upon installation, which cost an additional $2 million. The salvage value is estimated at $4 million, and the machine has a service life of five years. Maple has a December 31 fiscal year-end. What is the depreciation expense for year four (year 20X4) under the double declining balance method? (1 point) Assume the same facts as above. Maple uses double declining balance initially, but at 1/1/20X4 Maple decides straight-line depreciation would be more appropriate. At that time, Maple also changes the estimated useful life to a total of six years (three years remaining) and a salvage value of $2 million. What is the depreciation expense for 20X4? (1 point) Assume the same purchase information as above, but Maple instead uses sum-of-the- years'-digits to depreciate this machine from the time of purchase. Maple decides to sell the machine at the end of 20x3 and receives cash proceeds from the sale of $8,000,000. What is the journal entry to record the sale? (1 point)

Answer 1

A)

Double declining balance method depreciation
Depreciation = 2*Cost of the asset*Depreciation rate
Double decling balance formula = 2*Cost of the asset/ Uesful life
Trial run expenses were capitalised
Depreaction rate = 1/ Useful life
Cost of the asset	20
Salvage value	4
Useful life	5
Depreciation rate	20.00%
As per double declng method (2*depreciation rate)	40.00%
Year	Book value(beg of the year)	Depreciation	Book value(end of the year)
2001	20000000	8000000	12000000
2002	12000000	4800000	7200000
2003	7200000	2880000	4320000
2004	4320000	1728000	2592000

B) If the depreciation method is changed from Double declining to SLM , It shall be accounted for prospectively as this is a change in accounting estimate.(Statement 154 of U.S FASB)

Hence picking the balance aas on 01.01.2014 from the above table = 4320000, salvage value value =2000000, Useful life =3 years remaining

Depreciation as per SLM= 4320000-2000000/3 years = 773333.3 per year

C)

Sum of Digits method
Total sum of digits(Useful life)-5years	15
Trial run expenses were capitalised
Cost of the asset	20
Salvage value	4
Useful life	5
Depreciable amount = Acquisition cost- salvage value	16 million

	Year	Amount to be depreciated	Depreciation factor(year/sumof all the years)	Depreciation expense
2001	1	16000000	0.333333333	5333333.333
2002	2	10666666.67	0.266666667	2844444.444
2003	3	7822222.222	0.2	1564444.444
	4	6257777.778

End of 2003 the value of the machine = 6257777.77+4000000(salvage value)=10257777.78

Journal entry:

Cash A/c Dr. 8000000

Loss A/c Dr.2257777.77(bal fig)

To machine A/c 10257777.7

Being the entry for sale recorded)