Question

On March 31, 2016, Canseco Plumbing Fixtures purchased equipment for $66,000. Residual value at the end of an estimated four-year service life is expected to be $6,000. The company expects the machine to operate for 15,000 hours.

a.	Calculate depreciation expense for 2016 and 2017 using straight line method. Straight-Line Depreciation Choose Numerator: / Choose Denominator: = Annual Depreciation Cost minus Salvage / Estimated Useful Life (years) = Annual Depreciation / = Year Annual Depreciation x Fraction of Year = Depreciation Expense 2016 $0 x = 2017 $0 x =

b.

Calculate depreciation expense for 2016 and 2017 using sum-of-the-years’-digits method. Sum-of-the-years' digits depreciation Depreciable Base x Rate per Year x Fraction of Year = Depreciation Expense 4/1/2016 through 12/31/2016 x x = Total depreciation expense - 2016 1/1/2017 through 3/31/2017 x x = 4/1/2017 through 12/31/2017 x x = Total depreciation expense - 2017

c.	Calculate depreciation expense for 2016 and 2017 using double-declining balance method. Depreciation for the Period End of Period Annual Period Beginning of Period Book Value Depreciation Rate Fraction of Year Depreciation Expense Accumulated Depreciation Book Value 2016 $0 $0 2017 $0 $0

Answer 1

Answer a

Depreciation using Straight Line Method (SLM)

Cost of the eqipment = $66,000

Residual value = $6,000

Useful life of asset = 4 years

Annual depreciation under SLM = (Cost - Residual value) / useful life in years

= ($66,000 - $6,000) / 4  

= $15,000

• Depreciation for the year 2016 i.e., from 01/04/2016 to 31/03/2016 (9 months) = $15,000 X (9/12) = $11,250

• Depreciation for the year 2017 i.e from 01/01/2017 to 31/12/2017 = $15,000

Answer -b

Calculation of depreciation using sum of years digit method:

Applicable percentage =     Number of years of estimated life remaining at the beginning of the year

                                                                      SYD

SYD =   n(n+1)/2 where n is the estimated useful life of the asset.

Year	Remaining estimated useful life at beginning of year	SYD	Applicable percentage	Annual depreciation
1 (2016)	4 years (on 01/04/2016)	4(4+1)/2 = 10	4/10 = 40%	(66,000 – 6,000) x 40% = $24,000 (01/04/2016 to 31/03/2017)	01/04/2016 to 31/12/2016 (9 month) = 24,000 X (9/12) = $18,000
2 (2017)	3 years	10	3/10 = 30%	(66,000 - 6,000) X 30% = $18,000 (01/04/2017 to 31/03/2018)	01/01/2017 to 31/03/2017 (3 month) = 24,000 X (3/12) = $6,000
					01/04/2017 to 31/12/2017 (9 month) = 18,000 X (9/12) = $13,500
					Total depreciation in 2017 6,000 + 13,500 = $19,500

  

Answer-c:

Calculation of depreciation using double-declining balance method:

Straight line method rate (SL rate) = ¼ X 100 = 25%

Declining balance rate                    = 2 X 25% = 50%                       

Year	Net book value (NBV), beginning of year	Double-declining balance depreciation (beginning NBV X Declining balance rate)		Net book value, end of year
2016	$66,000    (on 01/04/2016)	$66,000 X 50% = $33,000 (01/04/2016 to 31/03/2017)	$33,000 X (9/12) = $24,750 (01/04/2016 to 31/03/2016)	$33,000
2017	$33,000 (on 01/04/2017)	$33,000 X 50% = $16,500 (01/04/2017 to 31/03/2018)	$33,000 X (3/12) = $8,250 (01/01/2017 to 31/03/2017)
			$16,500 X (9/12) = $12,375 (01/04/2017 to 31/12/2017)
			Total depreciation = ($8,250 + $12,375) = $20,625