Question

A machine was purchased at fair market price for $43,000 and is expected to have a deprecible life of 8 years.

a] Using the straight-line method, what are the depreciation amounts for each of the next 8 years? Assume for this particular book depreciation method that the asset will have an expected salvage value of $2,800 at the end of the depreciable life.

b] If the double-declining balance (200 % DB) method is used, what are the depreciation amounts for the next 8 years? Please do not consider the salvage value in this part.

Note: This is book depreciation analysis so the half-year rule does not apply.

Answer 1

Ans: The depreciation amounts for each of the next 8 years are shown in the following table.

End of the Year	Depreciation Amount	Book Value = Previous year book value - Current year depreciation amount
0		$43000
1	$5025	37975
2	5025	32950
3	5025	27925
4	5025	22900
5	5025	17875
6	5025	12850
7	5025	7825
8	5025	2800

Explanation:

Annual depreciation amount = ( P - F ) / n

= ( $43,000 - $2,800) / 8 = $40,200 / 8 = $5,025

b) Ans:

End of the year	Depreciation Amount = 0.25 * Previous year Book value	Book Value = Previous year book value - Current year depreciation amount
0	--	43000
1	10750	32250
2	8062.50	24187.50
3	6046.88	18140.63
4	4535.16	13605.47
5	3401.37	10204.10
6	2551.03	7653.08
7	1913.27	5739.81
8	1434.95	4304.86

Explanation:

When the double declining balance ( 200% DB ) method is used , then

Depreciation rate = 2/n = 2/8 = 0.25