In: Accounting
A plant asset acquired on October 1, 2022 at a cost of $800,000 has an estimated useful life of 10 years. The salvage value is estimated to be $50,000 at the end of the asset's useful life.
Instructions
Determine the depreciation expense for the first two years using the:
(a) straight-line method.
(b) double-declining-balance method.
Answer-
Given-
Book Value ofat the begining = $ 800,000
Salvage Value = $ 50,000
Useful Life = 10 years
To Find- Depreciation for the first 2 years using ,
a- Straight Line Method
b- Double Declining Balance Method
Solution -
a - In Straight Line Method,
Depreciation = Book Value - Salvage Value / Estimated Life
= 800,000 - 50,000 / 10
= 750,000 / 10
= $ 75,000 ( Answer )
Note- Depreciation remains same in this method every year. So for 1st year- $ 75,000 and for 2nd year- $ 75,000.
b - In Double Declining Method , depreciable rate is double of the Straight Line Method.
So, Depreciable Rate in straight line method = 100 % / 10 = 10 %
Therefore, in double declining method , Depreciable Rate = 2 * Depreciable Rate in straight line method
= 2 * 10 %
= 20 %
2- Depreciaction Amount in double declining balane method
800,000 *20/ 100 = $ 160,000 ( year 1)
In year 2nd ,
= 800,000 - 160,000 * 20 /100
= 640,000 * 20 / 100
= $ 12,8000 ( year 2 )
So, Depreciation for the 1st year is $ 160,000 and for the 2nd year is $ 128,000.