Question

Process equipment is purchased in a chemical industry in 2020 for OMR 102000 for an expected service life of 3 years. Original salvage value was estimated to be OMR 21000 at the end of service life. Prepare a table showing the depreciation cost and book value for each year by using the following depreciation methods.
a) Straight line method
b) Declining balance method
c) Double declining balance method
d) Sum of the years digit method
e) MACRS method using half year convection (Refer the fixed percentage factor table for applicable year)

##all the answers must be perfect without any decimal place

Answer 1

PARTICULARS	STRAIGHT LINE METHOD	DECLINING BALANCE METHOD	DOUBLE DECLINING BALANCE METHOD	SUM OF YEARS DIGIT METHOD	MACRS METHOD using half year convection
cost	102000	102000	102000	102000	102000
no.of years	3	3	3	3	3
salvage	21000	21000	21000	21000	21000
total depreciation	81000	61450	91370	81000	102000
bookvalue	21000	40550	10630	21000	0

WORKINGS

1) Straight line method-  Annual Depreciation Expense = (Cost of an asset – Salvage Value)/Useful life of an asset

=

=27000

Bookvalue = 102000 - (3*27000)

=21000

2) Declining balance method - Depreciation Expense = (Book value of asset at beginning of the year x Rate of Depreciation)/100

   Rate of depreciation= 27000*100/102000

=26.47%

particulars	year1	year2	year3
annual depreciation	102000*26.47% = 27000	75000*26.47%=19853	55147*26.47%=14597
bookvalue	102000-27000=75000	75000-19853=55147	55147-14597=40550

3) Double Declining Balance Method

Annual Depreciation Expense = 2 x (Cost of an asset – Salvage Value)/Useful life of an asset

Or

Depreciation Expense = 2 x Cost of the asset x depreciation rate

= 2 x(102000-21000) / 3

=54000

= 54000*100/102000 = 56.94%

particulars	year1	year2	year3
annual depreciation	102000*52.94% = 54000	48000*52.94%=25412	22588*52.94%=11958
bookvalue	102000-54000=48000	48000-25412=22588	22588-11958=10630

4) Sum of Years’ Digits Depreciation

Depreciation Expense = Depreciable Cost x (Remaining useful life of the asset/Sum of Years’ Digits

Where depreciable cost = Cost of asset – Salvage Value
Sum of years’ digits = (n(n +1))/2 (where n = useful life of an asset)

Year	Beginning Book Value	Depreciation Percent	Depreciation Amount	Accumulated Depreciation Amount	Ending Book Value
1.	102,000	50.00%	40,500	40,500	61,500
2.	61,500	33.33%	27,000	67,500	34,500
3.	34,500	16.67%	13,500	81,000	21,000

4)MACRS (modified accelerated cost recovery system)

Year	Adjusted Basis	Rate %	Depreciation	Cumulative	Book Value
1	102,000	33.33	34,000	34,000	68,000
2	68,000	44.44	45,333	79,333	22,667
3	22,667	14.81	15,111	94,444	7,556
4	7,556	7.41	7,556	102,000	0