Question

1) Computer equipment was acquired at the beginning of the year at a cost of $53,900. It had an estimated residual value of $4,300 and an estimated useful life of 5 years.

a. Determine the depreciable cost.

b. Determine the straight-line rate.

c. Determine the annual straight-line depreciation.

2) A machine costing $45,000 with a 5-year life and $2,700 residual value was purchased January 2. Compute depreciation for each of the five years, using the double-declining-balance method.

Year 1	$
Year 2	$
Year 3	$
Year 4	$
Year 5	$

Answer 1

1a. Determination of depreciable cost –

Depreciable cost = cost – residual value

Cost = $53,900

Residual value = $4,300

Depreciable cost = 53,900 – 4,300 = $49,600

1b. straight line rate –

Straight line rate = 1/usefullife of the asset

Useful life = 5 years

Straight line rate = 1/5 = 20%

1c. Annual straight line depreciation –

Annual straight line depreciation = depreciable cost x straight line rate

Depreciable cost = $49,600

Straight line rate = 20%

Annual straight line depreciation = 49,600 x 20% = $9,920

1. Computation of depreciation for each of the five years, using the double declining balance method:

Year	Depreciation Expense
Year 1	$18,000
Year 2	$10,200
Year 3	$6,480
Year 4	$3,888
Year 5	$2,332

Depreciation rate = 200% x straight line rate

Straight line rate = 1/useful life

Useful life = 5 years

Straight line rate = 1/5 = 20%

Double declining depreciation rate = 2 x 20% = 40%

Depreciation expense for Year 1 = cost x DDB rate

Cost = $45,000

Depreciation expense = 45,000 x40% = $18,000

BV at EOY1 = cost – accumulated depreciation = 45,000 – 18,000

BV EOY1 = $27,000

Depreciation expense for Year 2 = Book Value x DDB rate

BV = $27,000

Depreciation = 27,000 x 40% = $10,800

Accumulated Depreciation= 18,000 + 10,800 = 28,800

BV at EOY2 = 45,000 – 28,800 = $16,200

Depreciation expense for Year 3 = BV x DDB rate

BV = $16,200

Depreciation Year 3 = 16,200 x 40% = $6,480

Accumulated Depreciation = 18,000 + 10,200 + 6,480 = $35,280

BV at EOY 3 = $9,720

Depreciation expense for Year 4 = BV x DDB rate

BV = $9,720

Depreciation Year 4 = $9,720 x 40% = $3,888

Accumulated Depreciation = 18,000 + 10,200 + 6,480 + 3,888 = $39,168

BV at EOY 4 = $5,832

Depreciation expense for Year 5 = BV x DDB rate

BV = $5,832

Depreciation Year 5 = 5,832 x 40% = $2,333

Accumulated Depreciation = 18,000 + 10,200 + 6,480 + 3,888 + 2,332 = $41,500

BV at EOY 5 = $3,500