Question

Use the Dynamic Exhibit to answer the following questions. 1. Fill in depreciation expense in year 3 under each depreciation method when residual value is $30,000 and useful life is 3 years: Depreciation method: Straight-line Units-of-Output Double-declining 2. Fill in the book value at the end of year 1 under each depreciation method when residual value is $36,000 and useful life is 4 years: Depreciation method: Straight-line Units-of-Output Double-declining 3. Move the Useful Life slider from 3 years to 4 years and complete the sentence. Depreciation expense each year under every method is lower when the cost is spread over a longer useful life. View comments (1) Expert Answer

Answer 1

Inorder to calculate Depreciaion Cost of Asset isimportant. Any way for your understanding I can help you taking an assumption of $120,000 to be the cost.

Replace $120,000 for any number where all other facors constant.(Even if it is not I will tell you how to adjust.)

Depreciation Under Each Methods

a)Straight Line (Easiest method)

simply distributing the cost of asset over useful life evenly after deducting for Scrap Value.

b)Unit of Out-Put

The asset is depreciated for the capacity to Produce products and allocated to year based on production of that year.

c)double declining balance method

Where,Cost-Accumulated Depreciation = NBV Net Book Value

Where, Accumulated depreciation is Sum of Depreciation expense charged till date.

Double decline Method is like Residual Depreciation method as Depreciation is calculated on Net Book Value not on Cost, But then it is multplied by 2.

1)Cost $120k(Default) , Residual $30k and 3Year Life

a) Straight Line

Depreciation Expense= = =$30,000 (Year3 depreciation)

b)Units Produced

In this case as well Iam explaining for your understanding with Model example numbers.

Another Assumption is to be made "Capacity Estimated-no: of units 300,000 for 3 years"

Actual result-100,000per year.

= =0.3Per Units

......................................................= =30,000 (for Year 3) (Varies with different unit production)

c) Double Depreciation Method

Year	NBV	Factor(2/Useful Life)	Depreciation Expense	Accumulated Depreciation	Year end NBV(Start NBV-Depreciation Expense)
1	120,000	*(2/3)	80,000	80,000	(120-80)=40,000
2	40,000	* (2/3)	(26,666 Capped for residual value)=10,000	(80+10)=90,000	(40-10)=30,000
3	30,000	0 or *1	0	90,000	30,000 scrap

2)cost 120k, life 4years and residual 36k

NBV

a) straight line

year	NBV	Depreciation	Accumulated depreciation	NBV year end(cost-accum dep)
1	cost=120,000	(120,000-36,000)/4years =21,000	21,000	(120-21)=99,000

b) units produced

assume estiated units =400,000

Actual per year =100,000

4years we have

cost per unit = 120,000 / 400,000 =0.3 per unit

year	per unit cost	units produced	Depreciation expense	accum. deptn	NBV year end
1	$0.3	100,000	30,000	30,000	(120-30)=90,000

c)Double decline

Year	NBV	Factor(2/Useful Life)	Depreciation Expense	Accumulated Depreciation	Year end NBV(Start NBV-Depreciation Expense)
1	120,000	*(2/4)	60,000	60,000	(120-60)=60,000
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3) Yes it is true in case of straigt line and double depreciation methods above as Denominator factor is useful life the more useful life the lesser depreciation expense. In units produced method it is totally relative to the number of units produced a year, if the units production constant per year then the statement may right.