Question

Manufacturing equipment has a capital cost of $50,000, salvage value of $5000, and an asset life of 5 years. Compute the depreciation expense for the first 3 years under (a) accelerated cost recovery and (b) straight line.

Answer 1

ANSWER
a)	Accelerated Cost Recovery Method
	Formula
	Di	=	C x Ri
	where
	Di	=	Depreciation in year i
	C	=	Original Cost if the asset
	Ri	=	Depreciation rate fro year i
	YEAR	ADJUSTED BASIS	RATE (%)	DEPRECIATION	CUMULATIVE	BOOK VALUE	METHOD
	1	50000	10	5000	5000	45000	STRAIGHT LINE
	2	45000	20	10000	15000	35000	STRAIGHT LINE
	3	35000	20	10000	25000	25000	STRAIGHT LINE
	TOTAL DEPRECIATION			25000
b)	Straight Line Method
	Depreciation	=	Original Cost - Salvage Value
			No of Years
		=	50000-5000
			5
		=	45000/5
		=	9000
	YEAR	BOOK VALUE	DEPRECIATION	BALANCE BOOK VALUE
	1	50000	9000	41000
	2	41000	9000	32000
	3	32000	9000	23000
	TOTAL DEPRECIATION		27000