Question

Liable Laboratory Inc, has decided to purchase a new UA analyzer. Cost of the analyzer is 125,750, shipping costs are 30,000 and installation costs are 5,000. The life of the analyzer is expected to be 5 years and the resell value is 15,000. Calculate the straight-line depreciation, double declining depreciation and sum of the years depreciation for each year of the useful life

Answer 1

Straight Line Depreciation

Straight line Depreciation = [Cost of the asset – Salvage Value] / Useful Life

Cost of the asset = Cost of the analyzer + Shipping Cost + Installation Cost

= $125,750 + $30,000 + $5,000

= $160,750

Therefore, the Straight line Depreciation = [Cost of the asset – Salvage Value] / Useful Life

= [$160,750 - $15,000] / 5 Years

= $145,750 / 5 Years

= $29,150 per yea

Double Declining Depreciation

Depreciation under Double Declining Method is calculated by using the following formula

Depreciation Expense = Book Value Beginning x Depreciation Rate

Depreciation Rate = 2 x (1 / Useful Life]

= 2 x (1/2)

= 0.40

Year	Beginning of period Book Value ($)	Depreciation Rate	Annual Depreciation ($)	Book Value at the end ($)
1	1,60,750	0.40	64,300	96,450
2	96,450	0.40	38,580	57,870
3	57,870	0.40	23,148	34,722
4	34,722	0.40	13,889	20,833
5	20,833	0.40	5,833	15,000

Sum of the years depreciation

Depreciation Under Sum of years digits Method = [ Cost of the asset – Salvage Value ] x Number of years factor

Year 1 = $48,583 [($160,750 - $15,000) x 5/15]

Year 2 = $38,867 [($160,750 - $15,000) x 4/15]

Year 3 = $29,150 [($160,750 - $15,000) x 3/15]

Year 4 = $19,433 [($160,750 - $15,000) x 2/15]

Year 5 = $9,717 [($160,750 - $15,000) x 1/15]