Question

ABC Distribution Center Inc. purchased special handling equipment for beverage manufacture $20,000. The equipment may be depreciated using the following three depreciation methods for 5 years with a salvage value of $5,000.

Develop depreciation schedules for the three methods. Show detail of your set up with book value for each year.

i. DDB

ii. SOYD

iii. MACRS

Answer 1

Initial Cost = $20000
Life = 5 Years
Salvage Value = $5000

1) DDB method-
Depreciation Factor = 2 * ( 20000 - 5000 ) / 5 = 40%
1st year,
20000 * 0.4 = 8000
Book value = 20000 - 8000 = 12000

Year	Beginning	Depreciation	Depreciation	Accumulated	Ending
	Book Value	Percent	Amount	Depreciation	Book Value
1	20000	0.40	8000	8000	12000
2	12000	0.40	4800	12800	7200
3	7200	0.31	2200	15000	5000
4	5000	0.00	0	15000	5000
5	5000	0.00	0	15000	5000

The depreciation percent will change because the total depreciation amount using earlier rate will be more than the ending book value.

2) Some of Years
Some of the years of total life
( 5+4+3+2+1 ) = 15
1st year depreciation
5 / 15 = 0.333 or 33%
15000 * 0.33 = 5000
Ending book value = 20000 - 5000 = 15000

2nd year
15000 * ( 4/15 ) = 15000 * 0.2667
= 4000
Ending Book value = 15000 - 4000 = 11000

Year	Beginning	Depreciable	Depreciation	Depreciation	Accumulated	Ending
	Book Value	Amount	Percent	Amount	Depreciation	Book Value
1	20000	15000	0.3333	5000	5000	15000
2	15000	15000	0.2667	4000	9000	11000
3	11000	15000	0.2000	3000	12000	8000
4	8000	15000	0.1333	2000	14000	6000
5	6000	15000	0.0667	1000	15000	5000

3) MACRS - 5 year
The depreciation percent is provided by the income tax department

1st year
20000 * 0.2 = 4000
Book value = 20000 - 4000 = 16000
2nd year,
20000 * 0.32 = 6400
Ending book value
16000 - 6400 = 9600

Year	Beginning	MACRS	Depreciation	Cumulative	Ending	Depreciation
	Book Value	Depreciation %	Amount	Depreciation	Book Value	Method
1	20000	20	4000	4000	16000	DB
2	16000	32	6400	10400	9600	DB
3	9600	19.2	3840	14240	5760	DB
4	5760	11.52	2304	16544	3456	SL
5	3456	11.52	2304	18848	1152	SL
6	1152	5.76	1152	20000	0	SL