Question

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A distillation column is designed, purchased and installed for a cost of $1.2 million. The equipment has a depreciable life of ten (10) years with a final salvage value of $50,000 in year 10. For this equipment determine …

a. The book value and depreciation allowance for each year using straight-line (SLN) depreciation.

b. Book values and depreciation allowances for each year using double-declining (DDB) depreciation.

Answer 1

a) Straight line depreciation per year = (Intitial cost - Salvage value) / Life of the asset

                                                           = (1,200,000 - 50,000) / 10

                                                           = $115,000

The depreciation schedule is given below:

End of the year	Depreciation Amount ($)	Book Value($) = Previous year book value - Current year depreciation amount
0	--	1200000
1	115000	1085000
2	115000	970000
3	115000	855000
4	115000	740000
5	115000	625000
6	115000	510000
7	115000	395000
8	115000	280000
9	115000	165000
10	115000	50000

b) The DDB depreciation rate = 2 / N = 2 / 10 = 0.20 or 20%

The depreciation schedule is given below:

End of the year	Depreciation Amount($) = 0.20 * Previous year book value	Book Value($) = Previous year book value - Current year depreciation amount
0	--	1200000
1	240000	960000
2	192000	768000
3	153600	614400
4	122880	491520
5	98304	393216
6	78643	314573
7	62915	251658
8	50332	201327
9	40265	161061
10	111061	50000