An asset costs $10,000 and has a depreciable life of 10 years and a salvage value...

An asset costs $10,000 and has a depreciable life of 10 years and a salvage value of $3,000. Determine the book (asset) value at the end of the 9th year using each of the following methods of depreciation (a) double-declining-balance method (b) textbook-declining-balance method (Matheson formula), and (c) sum-of-years’ digits method.

Expert Solution

(a) Double Declining Balance method Depreciation = Beginning Book Value x 2 times straight line rate

Maximum Depreciation is such that ending book value doesnot fall below salvage value

YEAR	Beginning Book Value	Depreciation Sum of Digits@20%	Accumulated Depreciation	Ending Book Value
1	$ 10,000	$ 2,000	$ 2,000	$ 8,000
2	$ 8,000	$ 1,600	$ 3,600	$ 6,400
3	$ 6,400	$ 1,280	$ 4,880	$ 5,120
4	$ 5,120	$ 1,024	$ 5,904	$ 4,096
5	$ 4,096	$ 819	$ 6,723	$ 3,277
6	$ 3,277	$ 277	$ 7,000	$ 3,000
7	$ 3,000	$ -	$ 7,000	$ 3,000
8	$ 3,000	$ -	$ 7,000	$ 3,000
9	$ 3,000	$ -	$ 7,000	$ 3,000
10	$ 3,000	$ -	$ 7,000	$ 3,000

Book Value at end of 9th year = $3000

(b) Textbook Declining Balance Method = Beginning Book Value x Depreciation rate

YEAR	Beginning Book Value	Depreciation Sum of Digits @10%	Accumulated Depreciation	Ending Book Value
1	$ 10,000	$ 1,000	$ 1,000	$ 9,000
2	$ 9,000	$ 900	$ 1,900	$ 8,100
3	$ 8,100	$ 810	$ 2,710	$ 7,290
4	$ 7,290	$ 729	$ 3,439	$ 6,561
5	$ 6,561	$ 656	$ 4,095	$ 5,905
6	$ 5,905	$ 590	$ 4,686	$ 5,314
7	$ 5,314	$ 531	$ 5,217	$ 4,783
8	$ 4,783	$ 478	$ 5,695	$ 4,305
9	$ 4,305	$ 430	$ 6,126	$ 3,874
10	$ 3,874	$ 387	$ 6,513	$ 3,487

Book Value at end of 9th year = $3874

(c) Sum of Year's Digit Method = (Original Value - Salvage Value) / Sum of Years x Years remaining

YEAR	Beginning Book Value Depreciation Sum of Digits	Depreciation Sum of Digits	Accumulated Depreciation
1	$ 10,000	$ 1,273	$ 1,273	$ 8,727
2	$ 8,727	$ 1,145	$ 2,418	$ 7,582
3	$ 7,582	$ 1,018	$ 3,436	$ 6,564
4	$ 6,564	$ 891	$ 4,327	$ 5,673
5	$ 5,673	$ 764	$ 5,091	$ 4,909
6	$ 49,09	$ 636	$ 5,727	$ 4,273
7	$ 4,273	$ 509	$ 6,236	$ 3,764
8	$ 3, 764	$ 382	$ 6,618	$ 3,382
9	$ 3,382	$ 255	$ 6873	$ 3,127
10	$ 3,127	$ 127	$ 7,000	$ 3,000

Book Value at end of 9th year = $3127.

Rahul Sunny answered 7 months ago

A depreciable asset costs $10,000 and has an estimated salvage value of $1600 at the end...

A depreciable asset costs $10,000 and has an estimated salvage value of $1600 at the end of its 6-year depreciable life. Compute the depreciation schedule for this asset by both SOYD depreciation and DDB depreciation.

A machine costs Rs. 10,000 with useful life of 5 years. It has a salvage value...

A machine costs Rs. 10,000 with useful life of 5 years. It has a salvage value of Rs. 2,000 at the end of its useful life. The machine is expected to generate the following cash flows; Year Cash Flow (PKR) 1 5,000 2 6,000 3 8,000 4 6,500 5 4,000 Calculate Accounting Rate of Return? Tax is applied at 30% per annum. Why Accounting Rate of Return is not among the favorite methodology to evaluate a project? In what circumstances...

Investment: $75,000 Annual costs: $5,000 Annual revenues: $50,000 Project life: 10 years MARR: 10% Salvage: $10,000...

Investment: $75,000 Annual costs: $5,000 Annual revenues: $50,000 Project life: 10 years MARR: 10% Salvage: $10,000 What is the NPV of this project? If the NPV of an alternative project was $200,000, which project would you pursue? If the NPV of this project was $100,000, what would be the AW of this project? If the NPV of this project was $100,000, what would be the FW of this project? what is the IRR of this project? Based on the...

Consider an asset that costs $196,000 and is depreciated straight-line to 10,000 salvage value over its...

Consider an asset that costs $196,000 and is depreciated straight-line to 10,000 salvage value over its 12-year tax life. The asset is to be used in 8-year project; at the end of the project, the asset can be sold for $47,000. The relevant tax rate is 35 percent. What is the after-tax cash flow from the sale of this asset?

A depreciable item is purchased for $500,000. The salvage value at the end of 25 years...

A depreciable item is purchased for $500,000. The salvage value at the end of 25 years is estimated at $100,000. What is the depreciation in each of the first three years using the (a) straight line, (b) sum-of-the-years' digits, and (c) double-declining balance methods?

Given an asset with initial cost of $20,000, useful life of 5 years, salvage value =...

Given an asset with initial cost of $20,000, useful life of 5 years, salvage value = 0, find the depreciation allowances and the book values using the a. Straight-Line Method b. MACRS

Lundy Company purchased a depreciable asset for $99,000 on January 1. The estimated salvage value is...

Lundy Company purchased a depreciable asset for $99,000 on January 1. The estimated salvage value is $18,000, and the estimated useful life is 9 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset? Please round the double-declining balance rate to 2 decimal places, e.g. 0.35 or 35% in your intermediate calculations. $11,000 $17,820 $13,900 $16,988

Consider the depreciation of a %5,000 asset with $0 salvage value. Assuming a 5 year depreciable...

Consider the depreciation of a %5,000 asset with $0 salvage value. Assuming a 5 year depreciable life, develop the complete depreciation schedules for the asset showing year-by-year depreciation charges and book values, using: (a) Straight Line (b) Sum-of-years'-digits (SOYD) (c) Declining Balance (DB) with 20% depreciation rate, and (d) Modified accelerated cost recovery system (MACRS) depreciation. Be sure to include complete depreciation schedules showing year-by-year depreciation amounts, and, book values, for each problem.

1. A million-dollar oil drilling rig has a 6-year depreciable life and a $75,000 salvage value...

1. A million-dollar oil drilling rig has a 6-year depreciable life and a $75,000 salvage value at the end of that time. Determine which one of the following methods provides the preferred depreciation schedule: DDB or SOYD. Show the depreciation schedule for the preferred method.

Swifty Corporation purchased a depreciable asset for $710000 on April 1, 2015. The estimated salvage value...

Swifty Corporation purchased a depreciable asset for $710000 on April 1, 2015. The estimated salvage value is $71000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. What is the balance in accumulated depreciation on May 1, 2018 when the asset is sold? $299550 $352050 $394050 $257550

Question