Question

Partial-year depreciation Equipment acquired at a cost of $108,000 has an estimated residual value of $6,000 and an estimated useful life of 10 years. It was placed in service on May 1 of the current fiscal year, which ends on December 31. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet a. Determine the depreciation for the current fiscal year and for the following fiscal year by the straight-line method. Round your answers to the nearest dollar. Depreciation Year 1 $ Year 2 $ b. Determine the depreciation for the current fiscal year and for the following fiscal year by the double-declining-balance method. Do not round the double-declining balance rate. Round your answers to the nearest dollar. Depreciation Year 1 Year 2 $ $

Answer 1

a. Straight line depreciation

Cost of equipment = $108,000

Residual value = $6,000

Useful life = 10 years

Depreciation expense per year = ( Cost of equipment - Salvage value ) / Useful life= ( $108,000 - $6,000) / 10 years = $10,200 per year

Depreciation expense for Year 1 from May 1 to December 31 = Depreciation expense per year * 8 months / 12 months = $10,200 * 8 / 12 = $6,800.

Under straight line basis, depreciation expense for the year will be same each year.

Depreciation expense for 2nd year = $10,200.

	Depreciation
Year 1	$6,800
Year 2	$10,200

b. Double declining method

Double declining method depreciation % = ( 100% / Useful life ) * 2 = ( 100% / 10 years ) * 2 = 20%.

Depreciation expense for the 1st year = Opening book value * Depreciation % = $108,000 * 20% = $21,600.

As equipment is used from May 1 only, therefore, depreciation expense will be for 8 months only.

Depreciation expense for Year 1 = $21,600 * 8 months / 12 months = $14,400.

Book value after 1st year depreciation = Opening book value - Depreciation expense for 1st year = $108,000 - $14,400 = $93,600.

Depreciation expense for the 2nd year = Opening book value * Depreciation % = $93,600 * 20% = $18,720.

	Depreciation
Year 1	$14,400
Year 2	$18,720