Question

In: Accounting

Equipment is purchased on July 1, 2011 for $250,000. The estimated salvage value and useful life...

Equipment is purchased on July 1, 2011 for $250,000. The estimated salvage value and useful life are $25,000 and 5 years, respectively. What is the depreciation expense for 2012 under: (1) straight-line method, (2) sum-of-years-digits method, and (3) double-declining balance method

The answer is S-L: 45,000 DDB: 80,000SYD:67,500

Can you please explain step by step solution.

Expert Solution

Answer:- 1)-Straight line Method:-

= Cost of asset- Salvage value of asset/No. of useful life (years)

=($250000-$25000)/5 years

=$225000/5 years = $45000

2011 year depreciation =$45000*6 months/12 months

= $22500

2012 year depreciation =$45000

2)- Double Declining balance depreciation is calculated using the following formula:

Depreciation = Depreciation Rate * Book Value of Asset

Depreciation rate is given by the following formula:

Depreciation Rate = Accelerator *Straight Line Rate

Straight-line Depreciation Rate = 1/5 = 0.20 = 20%
Declining Balance Rate = 2*20% = 40%

Depreciation for 2011 = $250000 *40% = ($100000*6 months/12 months)

=$50000

Book value at end of 2011 = $250000 – $50000 = $200000

Depreciation for 2012 = $200000* 40% = $80000

3)-Sum of the years digits=Depreciable base*Remaining useful life/sum of the years digits

Sum of the Years' Digits = 1+2+3+4+5= 5(5 + 1) ÷ 2 = 15

Depreciable Base =Cost of asset – Salvage value

= $250000− $25000 = $225000

Depreciation expenses Year 2011 = ($225000*5/15) *6 months/12 months

= $37500

Depreciation expenses Year 2012 = $225000*4/15

= $60000

ekkarill92 answered 1 month ago

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