Question

Consider the following data on an​ asset:        

                                                                                                                                                                                                                                                                                                                 

Cost of the​ asset, I	​$214,000
Useful​ life, N	5 years
Salvage​ value, S	​$62,000

Compute the annual depreciation allowances and the resulting book values.

​(a) Use the​ straight-line depreciation method. Fill in the table below. ​(Round to the nearest​ dollar.)

n	Dn	Bn
1	​$__________	​$___________
2	​$__________	​$___________

3	​$__________	​$___________
4	​$__________	​$___________
5	​$__________	​$___________

​(b) Use the​ double-declining-balance method. Fill in the table below. ​(Round to the nearest​ dollar.)

n	Dn		Bn
1	​$_________		​$__________
2	​$_________		​$__________

3	​$_________		​$__________
4	​$_________		​$__________
5	​$_________		​$__________

Answer 1

a)

Straight line depreciation

Depreciation per year=(I-S)/N=(214000-62000)/5=$30,400 per year

Each year will have equal amount of depreciation.

Book Value at the end of year 1=214000-30400=$183,600

Book Value at the end of year 2=183,600-30,400=$153,200

Book Value at the end of year 3=153,200-30,400=$122,800

Book Value at the end of year 4=122,800-30,400=$92,400

Book Value at the end of year 5=92400-30,400=$62,000

Following schedule can be made with the help of above information

n	Dn	Bn
1	$30,400	$183,600
2	$30,400	$153,200
3	$30,400	$122,800
4	$30,400	$92,400
5	$30,400	$62,000

b)

Double declining method

Depreciating rate =200%/N=200%/5=40%

Deprecation for first year=D1=214000*40%=$85,600

Book value after year 1=B1=214000-85600=$128,400

Deprecation for 2nd year=D2=128400*40%=$51,360

Book value after year 2=B2=128400-51360=$77,040

Deprecation for 3rd year=D3=77040*40%=$30816

Book value after year 3=B3=77040-30816=$46,624

Book value cannot be lower than salvage value, So, book value will be recorded as salvage value i.e. $62000 and depreciation for third year D3 is

D3=B2-salvage value=77040-62000=$15040

Book value after 3rd year=$77040-15040=$62,000

Depreciation will be zero after 3rd year and book value will be equal to salvage value.

Following schedule can be made with the help of above information

n	Dn	Bn
1	85600	128400
2	51360	77040
3	15040	62000
4	0	62000
5	0	62000