Question

D- Some construction company has bought a product for $200,000 with a life of three years, and a salvage value of $10,000. Tabulate depreciation and book value using MACRS, Double Declining Balance and straight-line methods. Which method gives the company the largest depreciation after two years? please show and explain all steps

Answer 1

Straight line method of depreciation
Depreciation per year = [Cost - salvage value]/useful life in years
Depreciation per year = [$200000-$10000]//3 years = $63,333
Year	Depreciation
1	$63,333.00
2	$63,333.00
3	$63,334.00
MACRS method of depreciation using 3 year MACRS rates
Year	Depreciable value	Depreciation Rates	Depreciation
1	$200,000.00	33.33%	$66,660.00
2	$200,000.00	44.45%	$88,900.00
3	$200,000.00	14.81%	$29,620.00
Double Declining Balance method of depreciation
Depreciation per year = 2 x Straight line depreciation rate x Beginning book value of an asset
Straight line depreciation rate = Depreciation per year / [Cost - salvage value] = $63,333/$1,90,000 = 33.33%
Year	Beginning book value	Depreciation rate 66.67% (33.33 x 2)	Depreciation
1	$200,000.00	66.67%	$133,340.00
2	$66,660.00	66.67%	$44,442.22
3	$22,217.78	66.67%	$14,812.59
Answer
Straight line depreciation method give the company the largest depreciation after two years.