Question

A. compute the annual depreciation charges over the machine's life assuming a december 31 year end for each of the following depreciation methods.

       1. Straight line method    2. Sum-of-the-years-digits method

        3.Double declining balance method

B. Assume a fiscal year end of september 30 .compute the annual depreciation charges over the machine's life applying each of the following methods.

 1. Straight line method    2. Sum-of-the-years-digits method

 3.Double declining balance method

    

Answer 1

Step 1: Calculation of Depreciation under straight line method.

A) 1.

                              Cost of the asset -  salvage value

 Depreciation =   ------------------------------------

                               estimated useful life of asset

Depreciation = (90,000 - 6000)/5

                     = 16800

This amount of depreciation will be charged every year till the useful life of the asset.                                

Straight line Method
Year	Opening Balance	Depreciation	Closing Balance
1	90000	16800	73200
2	73200	16800	56400
3	56400	16800	39600
4	39600	16800	22800
5	22800	16800	6000

 

B)1.

Calculation of straight line depreciation for

      Depreciation for an year = 16800

      But it has been purchased after 3 months ,so depreciation has to be charged for 9 months 

 therefore , depreciation = 16800 x 9/12

                                       = 12,600

Straight line Method
Year	Opening Balance	Depreciation	Closing Balance
1  (9 Months)	90000	12600	77400
2	77400	16800	60600
3	60600	16800	43800
4	43800	16800	27000
5	27000	16800	10200
6 (3 Months)	10200	4200	6000

 

Step 2: Calculation of depreciation under Double declining balance                        method.

A ) 3

Depreciation = 2 x (100% / Useful life of the asset)

                     = 2*20%= 40%

Depreciation 1 year = 90000 x 40% = 36000

Depreciation 2 year = [90000-36000] x 40 %

                                = 21,600

This is the way depreciation is calculated in Double declining Balance Method.

Double Declining Balance Method
Year	Opening Balance	Depreciation	Closing Balance
1	90000	36000	54000
2	54000	21600	32400
3	32400	12960	19440
4	19440	7776	11664
5	11664	5664	6000
		Residual value	6000

B.) 2

Depreciation = 2 x (100% / Useful life of the asset)

                     = 2*20%= 40%

Depreciation 1 year = 90000 x 40% = 36000

 But the machine was purchased after three months so 

      Depreciation = 36000 x 9/12 = 27000

Double Declining Balance Method
Year	Opening Balance	Depreciation	Closing Balance
1(9 months)	90000	27000	63000
2	63000	25200	37800
3	37800	15120	22680
4	22680	9072	13608
5	13608	5443.2	8164.8
6(3 Months)	8164.8	2164.8	6000
		Residual value	6000

 

Step 3 :

A ) 2.

Calculation of depreciation under sum of years digits method

Depreciation =(Cost - salvage value ) x (year factor/ sum of years digits)

 Depreciation for 1st  year = (90000-6000) x (5 /15)

                                            = 28000

Depreciation for 2nd year = (90000-6000) x (4 /15)

                                             = 22400

Depreciation for 3rd year = (90000-6000) x (3 /15)

                                             = 16800

Depreciation for 4th year = (90000-6000) x (2 /15)

                                             = 11200

Depreciation for 5th year = (90000-6000) x (1 /15)

                                            = 5600

Sum of years digits method
Year	Opening Balance	Depreciation	Closing Balance
1	90000	28000	56000
2	56000	22400	33600
3	33600	16800	16800
4	16800	11200	5600
5	5600	5600	0
		Residual Value	6000

 

B ) 3

Sum of years digits method
Year	Opening Balance	Depreciation	Closing Balance
1	90000	21000	63000
2	63000	23800	39200
3	39200	18200	21000
4	21000	12600	8400
5	8400	7000	1400
6	1400	1400	0
		Residual Value	6000

 

 

 

Depreciation is charged annually over the useful life of the assets.