In: Accounting
On April 1, 2011, Company A purchased equipment for $100,000. On the purchase, a sales tax of 15% is being paid. The equipment has defected, so a maintenance cost of $2000 is incurred for repairs. After the equipment arrives, the company must pay the transportation cost of $5000. The company also paid installation and testing costs of $20000. This equipment is estimated to have 5-year useful life. At the end of the 5th year, the salvage value (residual value) will be $20,000. Company A recognizes depreciation to the nearest whole month. Instructions:
Make a deprecation schedule
a. Using a double-declining balance depreciation method.
b. Using straight-line depreciation method.
Assume April 31, is year end
Cost of equipment = Cash purchase price + Transportation cost + Sales tax paid + Installation cost + Preliminary maintenance cost
Cost of equipment = 100000 + 5000 + 15000 + 20000 + 2000 = 142000
Residual value = 20000
a. Using a double-declining balance depreciation method.
Depreciation exp = ( cost - salvage value ) / useful life
Depreciation exp = (142000 - 20000 ) 5 = 24400
.
Depreciation schedule
Year |
Depreciation |
Accumulated depreciation |
Carrying value |
01-Apr-11 |
142000 |
||
31-Mar-12 |
24400 |
24400 |
117600 |
31-Mar-13 |
24400 |
48800 |
93200 |
31-Mar-14 |
24400 |
73200 |
68800 |
31-Mar-15 |
24400 |
97600 |
44400 |
31-Mar-15 |
24400 |
122000 |
20000 |
.
Under Double decline balance method
Double Decline rate = Straight line rate * 2
Straight line rate = 100 / 5 = 20%
Double Decline rate = 20 * 2 = 40%
.
Not consider salvage value in the beginning year, only consider at the last period of useful life.
.
Year |
Beginning value |
Rate |
Depreciation |
Accumulated depreciation |
Carrying value |
31-Mar-12 |
142000 |
40% |
56800 |
56800 |
85200 |
31-Mar-13 |
85200 |
40% |
34080 |
90880 |
51120 |
31-Mar-14 |
51120 |
40% |
20448 |
111328 |
30672 |
31-Mar-15 |
30672 |
40% |
10672 |
122000 |
20000 |
.
* Under this method cannot deprecate below salvage value