Question

On March 31, 2018, Canseco Plumbing Fixtures purchased equipment for $44,000. Residual value at the end of an estimated four-year service life is expected to be $8,000. The company expects the machine to operate for 20,000 hours. a. Calculate depreciation expense for 2018 and 2019 using straight line method. b. Calculate depreciation expense for 2018 and 2019 using sum-of-the-years’-digits method. c. Calculate depreciation expense for 2018 and 2019 using double-declining balance method.

Answer 1

assume company fallows calender year as its accounting year

1) Depriciation under SLM

Dep for the year2018 = cost of the asset-residual value/use full life

=44000-8000/4

   =9000

=9000*9/12

=6750$

dep for the year 2019=9000$  

2)Depreciation under sumof years digits method

Use the following formula to calculate it:

Applicable percentage =Number of years estimated life remaining at the beginning of the year/SYD SYD=n(n+1)/2	Number of years of estimated life remaining at the beginning of the year
	SYD

   

		where n = estimated useful life

year	remaing estimated life at the begin ing of the year	SYD	annual %	annual depreciation
1	4	4/10	40%	14400
2	3	3/10	30%	10800
3	2	2/10	20%	7200
4	1	1/10	10%	3600
total	10		100%	36000

date of aquisition 31-mar-2018 i.e 9 months for year1, because asset not aquired at the beging of the year i.e75%:25%

	total depreciation	2018	2019
year 1	14400	10800	3600
year 2	10800	-	8100
total		10800	11700

3) depreciation calculation under  double-declining balance method.

To calculate depreciation under the double declining method, multiply the asset book value at the beginning of the fiscal year by a multiple of the straight-line rate of depreciation. The double declining balance formula is:

Double-declining balance (ceases when the book value = the estimated salvage value)

2 × Straight-line depreciation rate × Book value at the beginning of the year

Straight-line depreciation rate=1/4

=25%

year	Net book value, beginning of year $	Double-declining balance depreciation computed as 2 × SL rate × beginning NBV $	net book value end of the year $
1	44000	22000	22000
2	22000	11000	11000

depreciation for 2018=22000

2019=11000