Question
In: Accounting
A machine that cost $32,000 on January 1, 2015 was depreciated by Ava Company using the...
A machine that cost $32,000 on January 1, 2015 was depreciated by Ava Company using the double declining method. The machine had a $3,700 residual value and a useful life of 5 Years. On January 1. 2017, the company switched to the straight line method.
What is the book value of the machine as of January 1, 2017?________
Please show all steps and how you got each number
Solutions
Expert Solution
| CALCULATION OF THE DEPRECIATION AS PER DOUBLE DECLINE METHOD | |||
| Purchase Cost of Machine | $ 32,000 | ||
| Useful Life = | 5 years | ||
| Depreciation per year = | $ 6,400 | ||
| (Purchase price / Useful life) | |||
| CALCULATION OF THE RATE OF DEPRECIATION | |||
| Rate of Depreciation = | $ 6,400 / $ 32,000 | ||
| (Depreication / Purchase price ) | |||
| Rate of Depreciation = | 0.20 or 20% | ||
| Double decline deprection rate = 20% * 2 = | 40% | ||
| Purchase Value of the Machine | $ 32,000 | ||
| Less: Depreciation for the year 2015 @ 40% | $ 12,800 | ||
| Book Value of the Machine at Year end 2015 | $ 19,200 | ||
| Book Value of the Machine at opening of 2016 | $ 19,200 | ||
| Less: Depreciation for the year 2016 @ 40% | $ 7,680 | ||
| Book Value of the Machine at Year end 2016 | $ 11,520 | ||
| Book value of the opening of 2017 = | $ 11,520 | ||
| Answer = $ 11,520 | |||
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