Question

Your company just bought a new piece of equipment to manufacture widgets. It has a cost basis of​ $33,000, a useful life of 13​ years, and no salvage value. If the asset is depreciated using a​ 200% declining balance with straight line switchover​ method, answer the following​ questions:

​a) How much does the value depreciate in Year​ 1?

​b) How much does the value depreciate in Year​ 2?

​c) What is the book value at the end of Year​ 4?

​d) How much does the value depreciate in Year​ 10?

​e) In which year does the switchover occur​ (what is the first year of straight line​ depreciation)?

Answer 1

Refer above table.

a) Value will depreciate in 1st year = $5076.72

and depreciate to $33000 - $ 5076.72 =⟩ $27923.28

b) Value will Depreciate in 2nd year = $4295.72

And depreciate to $27923.28 - $ 4296.72 =⟩ $23627.56

c) Book Value at the end of 4th year = Value of asset - [Total of Depreciation till 4th year]

Ie. =⟩ $3300 - [ 5076.72 + 4295.72 + 3634.86 + 3075.68 ]

=⟩ $33,000 - $16082.98

=⟩ $16917.02

d) Value will depreciate in 10th year = $2538.46

And depreciate to $4160.67 - 2528.46 =⟩ $1622.21. (Ie. B.V of 9th year - 2538.46)

  

e) Switchover occur does occur in year 6th, where Straight line method represents more amount depreciation than Declining Balance Method.

first year of straight line​ depreciation = $2538.46