Question

nowledge Check 01 On January 1, Year 1, the Starshina Company paid $25.000 for a photocopier with an estimated useful life of 4 years, and an estimated esidual value of $5.000. The company uses the straight-line method. What is the amount of depreciation expense for Year 2? Depreciation expense

Answer 1

Ans.1	Straight line depreciation   = (Cost - Residual value) / Life in years
		(25000 - 5000) / 4
		5000
	In stratight line method the depreciation for each year will be equal.
Ans.2	Units of production method = ( Cost - residual value) / Estimated production * Actual production
		(25000 - 5000) / 1000000 * 220000
		20000 / 1000000 * 220000
		4400
Ans.3	Double declining method:
	Double declining balance rate   =   2 * 1 / life of asset
		2 * 1 / 4
		0.5
	Depreciation = Remaining value at the beg. Of year * 0.50
	Year	Remaining value at beg. Of year (a)	Depreciation (b = a*0.50)	Remaining value at end Of year (a-b)
	1	25000	12500	12500
	2	12500	6250	6250
	3	6250	1250	5000
	The remaining value at the end of year can not fall below the residual value
	the actual depreciation for year 3 is 6250 * 0.50 = 3125 that would result the
	remaining value at the year end = 6250 - 3125 = 3125 which is less than the
	residual value, which is not possible
	so we will calculate the accurate depreciation by subtracting the residual value from the beginning value. (6250 - 5000 = 1250)