Question
In: Accounting
One-year depreciation of MR machine purchased for $400,000 at the beginning of the year.
End of year adjustment – One-year depreciation of MR machine purchased for $400,000 at the beginning of the year. Cost: $400,000, Useful Life is 10 years. Calculate Straight-line and Accelerated Depreciation, Calculate The Double Declining Balance Depreciation, and Calculate The Sum of the Years Digits Depreciation.
Solutions
Expert Solution
SOLUTION:
Straight-line and Accumulated Depreciation
Depreciation expense= (Acquisition cost-Salvage value)/Useful life
| STRAIGHT-LINE METHOD | ||||||
| Year End | Acquisition Cost | Salvage Value | Useful Life | Annual Depreciation | Accumulated Depreciation | |
| 1st | $ 400,000 | 0 | 10 | years | $40,000 | $ 40,000 |
| 2nd | $ 400,000 | 0 | 10 | years | $40,000 | (40000+40000)= 80000 |
| 3rd | $ 400,000 | 0 | 10 | years | $40,000 | (80000+40000)= 120000 |
| 4th | $ 400,000 | 0 | 10 | years | $40,000 | (120000+40000)= 160000 |
| 5th | $ 400,000 | 0 | 10 | years | $40,000 | (160000+40000)= 200000 |
| 6th | $ 400,000 | 0 | 10 | years | $40,000 | (200000+40000)=240000 |
| 7th | $ 400,000 | 0 | 10 | years | $40,000 | (240000+40000)= 280000 |
| 8th | $ 400,000 | 0 | 10 | years | $40,000 | (280000+40000)= 320000 |
| 9th | $ 400,000 | 0 | 10 | years | $40,000 | (320000+40000)=360000 |
| 10th | $ 400,000 | 0 | 10 | years | $40,000 | (360000+40000)= 400000 |
The Double Declining Balance Depreciation
Depreciation Rate = 10%
Double Declining Balance Rate = 10% * 2 = 20%
| DOUBLE-DECLINING-BALANCE METHOD | ||||
| Year | Beginning Book Value | Rate | Annual Depreciation | Accumulated Depreciation |
| 1st | $ 400,000 | 20% | (400000*20%)= 80000 | 80000 |
| 2nd | (400000-80000)= 320000 | 20% | (320000*20%)= 64000 | (80000+64000)= 144000 |
| 3rd | (400000-144000)= 256000 | 20% | (256000*20%)= 51200 | (144000+51200)= 195200 |
| 4th | (400000-195200)= 204800 | 20% | (204800*20%)=40960 | (195200+40960)=236160 |
| 5th | (400000-236160)=163840 | 20% | (163840*20%)=32768 | (236160+32768)= 268928 |
| 6th | (400000-268928)=131072 | 20% | (131072*20%)=26214 | (268928+262140=295142 |
| 7th | (400000-295142)=104858 | 20% | (104858*20%)=20972 | (295142+20972)=316114 |
| 8th | (400000-316114)=83886 | 20% | (83886*20%)=16777 | (316114+16777)=332891 |
| 9th | (400000-332891)=67109 | 20% | (67109*20%)=13422 | (332891+13422)=346313 |
| 10th | (400000-346313)=53687 | 20% | (53687*20%)=10737 | (346313+10737)=357050 |
The Sum of the Years Digits Depreciation
Sum of Years' digit= N(N+1) / 2 = 10(11) / 2 = 110/2 = 55
| SUM-OF-THE-YEARS'-DIGIT METHOD | ||||
| Year | Fraction | Cost Less Salvage | Annual Depreciation | Accumulated Depreciation |
| 1st | 10/55 | $ 400,000 | (400000*10/55)= 72727 | 72727 |
| 2nd | 9/55 | $ 400,000 | (400000*9/55)= 65455 | (72727+65455)= 138182 |
| 3rd | 8/55 | $ 400,000 | (400000*8/55)= 58182 | (138182+58182)= 196364 |
| 4th | 7/55 | $ 400,000 | (400000*7/55)= 50909 | (196364+50909)= 247273 |
| 5th | 6/55 | $ 400,000 | (400000*6/55)= 43636 | (247273+43636)= 290909 |
| 6th | 5/55 | $ 400,000 | (400000*5/55)= 36364 | (290909+36364)= 327273 |
| 7th | 4/55 | $ 400,000 | (400000*4/55)= 29091 | (327273+29091)= 356364 |
| 8th | 3/55 | $ 400,000 | (400000*3/55)= 21818 | (356364+21818)= 378182 |
| 9th | 2/55 | $ 400,000 | (400000*2/55)= 14545 | (378182+14545)= 392727 |
| 10th | 1/55 | $ 400,000 | (400000*1/55)= 7273 | (392727+7273)= 400000 |
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