Question

Equipment costing $590,000 with an expected useful life of 10 years and an expected salvage value of $40,000, was purchased at the beginning of the year.

Calculate the depreciation expense for the first five years using:

(a) Sum-of-the-years' digits method. Do not round until final calculation. Round answers to the nearest whole number.

(b) Double-declining balance method (without straight-line switchover). Do not round until final calculation. Round answers to the nearest whole number.

Answer 1

Solution a:

Computation of Depreciation - Sum of digit of years
Year	Asset Cost	Depreciation Base	Remaining life of asset	Depreciation fraction	Depreciation Expense	Accumulated Depreciation	Ending Book Value
Purchase Date	$590,000.00
1		$550,000.00	10	10/55	$100,000	$100,000	$450,000
2		$550,000.00	9	9/55	$90,000	$190,000	$360,000
3		$550,000.00	8	8/55	$80,000	$270,000	$280,000
4		$550,000.00	7	7/55	$70,000	$340,000	$210,000
5		$550,000.00	6	6/55	$60,000	$400,000	$150,000

Solution b:

Depreciation rate - SLM = 1/10 = 10%

Depreciation rate - DDB = 10%*2 = 20%

Depreciation Schedule - Double Declining Balance Method
Date	Asset Cost	Book Value	Depreciation Rate (10%*2)	Depreciation Expense for the year	Accumulated Depreciation	Ending Book Value
Purchase Date	$590,000
1		$590,000	20%	$118,000	$118,000	$472,000
2		$472,000	20%	$94,400	$212,400	$377,600
3		$377,600	20%	$75,520	$287,920	$302,080
4		$302,080	20%	$60,416	$348,336	$241,664
5		$241,664	20%	$48,333	$396,669	$193,331