Question

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A plant asset acquired on October 1, 2022 at a cost of $800,000 has an estimated...

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.

Solutions

Expert Solution

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.

ekkarill92 answered 1 year ago

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