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Chapter 9 In Class Exercises: Depreciation Methods Scenario: Cost = Useful Life (Years) = Useful Life...

Chapter 9
In Class Exercises: Depreciation Methods

Scenario: Cost = Useful Life (Years) = Useful Life (Hours) = Salvage Value =

a) Calculate the SL annual rate:

30,000 5 140,000 2,000

1) Depreciable Cost = Cost - Salvage ValueDepreciable Cost = -

2) Calculate the Double DB rate:

SL Rate
x2 -

= Double DB rate

b) Calculate depreciation expense, accumulated depreciation and book value for the life of the

asset.
Depreciable Depreciation Annual Depr Accum.

Year Cost

Rate Exp Depr. Book Value

2010

2011

2012

2013

2014

= Depr. Cost

= Salvage Value

2) Method 2: Units of Activity
a) Calculate the Units of Activity rate:

b) Calculate depreciation expense, accumulated depreciation and book value for the life of the

asset.
Year Activity Rate

Annual Depr Exp

Accum.
Depr. Book Value

SL Rate =

x2 DDB Rate =

Units of Depreciation

2010

2011

2012

2013

2014

30,000

20,000

25,000

40,000

25,000

= Depr. Cost

= Salvage Value

140,000

3) Method 3: Double-Declining Balance

a) Calculate depreciation expense, accumulated depreciation and book value for the life of the asset.

Book Value Depreciation Annual Depr Accum.
Year Beg. Of Year Rate Exp Depr. Book Value

2010

2011

2012

2013

2014

30,000

= Salvage Value

PLUG

= Depr. Cost

Solutions

Expert Solution

Solution

Depreciation methods –

a. Calculation the SL annual rate:

Depreciation expense = depreciable base x SL rate

Cost = $30,000

Useful life = 5 years

SL annual rate = 1/5 = 20%

Depreciable base = cost – salvage value

Salvage value = $2,000

Depreciable base = 30,000 – 2,000 = $28,000

Annual depreciation expense = 28,000 x 20% = $5,600

SL Method

Year

Cost

Rate

Depreciation

Accumulated depreciation

book value

2010

$30,000

20%

$5,600

$5,600

$24,400

2011

$30,000

20%

$5,600

$11,200

$18,800

2012

$30,000

20%

$5,600

$16,800

$13,200

2013

$30,000

20%

$5,600

$22,400

$7,600

2014

$30000

20%

$5,600

$28,000

$2,000

b. Double DB rate –

Double DB rate = 2 x SL rate

= 2 x 20% = 40%

Depreciation expense, year 2010 = 30,000 x 40% = $12,000

Book value = cost – accumulated depreciation

BV at EOY 2010 = 30,000 – 12,000 = $18,000

2011

Depreciation = 18,000 x 40% = 7,200

Accumulated depreciation = 12,000 + 7,200 = 19,200

Book value = 30,000 – 19,200 = 10,800

2012

Depreciation = 10,800 x 40% = $4,320

Accumulated depreciation = 12,000 + 7,200 + 4,320 = $23,520

Book value = 30,000 – 23,520 = $6,480

2013

Depreciation = 6,480 x 40% = $2,592

Accumulated depreciation = 12,000 + 7,200 + 4,320 + 2,592 = $26,112

Book value = 30,000 – 26,112 = $3,888

2014

Depreciation = 3,888 x 40% = $1,555

Accumulated depreciation = 12,000 + 7,200 + 4,320 + 1,555 = $27,667

BV = 30,000 – 27,667 = $2,333

DDB Method

Year

Cost

Rate

Depreciation

Accumulated depreciation

book value

2010

$30,000

40%

$12,000

$12,000

$18,000

2011

$30,000

40%

$7,200

$19,200

$10,800

2012

$30,000

40%

$4,320

$23,520

$6,480

2013

$30,000

40%

$2,592

$26,112

$3,888

2014

$30000

40%

$1,555

$27,667

$2,333

Units-of-activity rate –

Depreciation expense = (depreciable base/useful life in hours) x hours used

Depreciable base = 30,000 – 2,000 = $28,000

Depreciation rate = 28,000/140,000 = $0.20 per hour

Depreciation expense = depreciation rate x units/hours

Units of Activity

Year

Cost

Units/hours

Depreciation

Accumulated depreciation

book value

2010

$30,000

30,000

$6,000

$6,000

$24,000

2011

$30,000

20,000

$4,000

$10,000

$20,000

2012

$30,000

25,000

$5,000

$15,000

$15,000

2013

$30,000

40,000

$8,000

$23,000

$7,000

2014

$30000

25,000

$5,000

$28,000

$2,000

ekkarill92 answered 2 years ago
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